Barclays attempts to close advice gap with Plan & Invest service

Barclays has launched an online investing  service in a bid to plug the so-called advice gap with a ‘personalised investment plan’.

Initially only available to Barclays current account customers with at least £5,000 to invest, but soon to be rolled out further, Plan & Invest is designed for those without the know-how, time or confidence to get started in investing.

It builds a tailored investment plan tailored to the user’s goals, which is then monitored by the same active managers behind the bank’s wealth management service. 

Plan & Invest is designed for those without the know-how, time or confidence to start investing

It is the latest launch within a plethora of so-called ‘robo-advice’ platforms that have come into market in recent years, offering cheaper, supposedly easier solutions for the novice investor.

However, Barclays says the Plan & Invest service is different in that the service is tailored to the user’s goals and needs and offers personalised support that traditional robo-advisers have yet to tap into. 

A spokesperson said: ‘Whilst there are numerous wealth management firms who offer tailored, face-to-face advice and a handful of good robo-advice providers, there’s very little support in between. 

‘This is what we were hearing from our customers – they wanted us to meet them halfway and create an advice service that gave them the personalisation associated with wealth management but with the digital convenience and affordability of robo-advice.’

This is Money was granted an exclusive tour of the seven step Plan & Invest scheme. Here’s what we found.

What is Plan & Invest?

The new service is a joint venture between Barclays and Scalable Capital, and gives customers access to the bank’s pick of both active and passive funds through a managed portfolio. 

Investments will be chosen and managed by Barclays’ dedicated team of investment experts, previously only accessible to clients with considerable sums to invest. 

It has been launched in an attempt to fill the gap between the expensive face-to-face catered advice offered by wealth management firms and the cheaper, simpler digital solutions provided by robo-advisers, such as Nutmeg and Wealthify, which generally invest in passive products based on the users ‘lifestyle’.  

Plan & Invest is different to Barclays’ Smart Investor service which is a DIY platform closer to the likes of Hargreaves Lansdown or AJ Bell where users can pick and choose where they invest. 

Robo-advisers offer investment solutions at a fraction of the cost of traditional finance advice given by flesh and blood humans

Robo-advisers offer investment solutions at a fraction of the cost of traditional finance advice given by flesh and blood humans

Who is it for?

The service is available to Barclays’ current account customers with at least £5,000 available to invest. It is accessible via online banking and will later this summer also be available through the Barclays app.    

It is mainly targeting those who have some money to invest but don’t know where to begin or lack the time, confidence or both.

A recent YouGov poll found over half of British savers (56 per cent) feel they don’t currently have access to the expert support they would need to start investing. Meanwhile 71 per cent believe they do not have the skills or expertise to invest on their own. 

Dirk Klee, chief executive of wealth management and investments at Barclays, said: ‘Over the last few months, we’ve seen a rise in the number of people wanting to invest for the first time and it feels more important than ever that we give people the right tools and advice to plan for their financial future.’ 

Currently, even Barclays Smart Investor customers cannot open a Plan & Invest account if they do not have a Barclays current account. 

How does it work?

Plan & Invest involves seven relatively straightforward steps to get started. The first is setting an objective in mind for your investment. 

Options available include retirement, buying a home, education, saving for family or something else. 

The second step is to check your affordability, by asking you to input assets, debts, liabilities, income and expenditure. If the programme thinks you have too much debt it will not take you forward as a candidate. 

Otherwise, it gives you figures for the most you can afford to invest, regular payments as well as a recommended emergency cash reserve. 

The first step in Plan & Invest is setting an objective in mind for your investment

The fifth stage of Plan & Invest will show you what your potential portfolio will look like

Barclays’ new Plan & Invest service involves seven relatively straightforward steps

These amounts can be changed manually if they don’t suit you, before going to the next step – testing your investment knowledge.

Somewhat confusingly, this involves only three questions – whether you’ve invested before, whether investments have been part of your job, or if you’ve got any relevant qualifications. Which is a rather blunt test of investing knowledge.

The fourth step is assessing your attitude to risk, where you asked to rate 12 statements based on how much you agree with them.

For example, ‘compared to other people, I am prepared to take higher financial risks’.

The fifth stage of creating your plan will show you what your potential portfolio will look like. This includes a breakdown of cash and short maturity bonds, bonds and equities, which are also split into subcategories such as geographies.

The penultimate step involves declaring whether or not you have an existing Isa and if you’d like to transfer it to the Plan & Invest service. If you select this option and go ahead with the service, Barclays will initiate any transfers requested.

Finally, you are presented with an infographic showing how likely (or unlikely) you are to reach your goal in the chosen time frame.

For the final stage of the Plan & Invest process, you are presented with an infographic showing how likely (or unlikely) you are to reach your goal in the chosen time frame

For the final stage of the Plan & Invest process, you are presented with an infographic showing how likely (or unlikely) you are to reach your goal in the chosen time frame

This also includes a projected value of your investment if markets perform poorly during that time. If you don’t like the results, you can always go back and make alterations.

Throughout the entire process you can save and come back later and also ask for online support via the live chat box. 

Barclays have also defined seven steps in the Plan & Invest’s ‘customer journey’. 

Barclays Plan & Invest seven-step journey 
1 Customer answers a series of questions online – covering their goals, finances, Isa allowances and how they respond to risk
This information is used to work out if investing is right for the customer and how much they can afford to contribute towards their goal, both initially and on an ongoing basis
 3 A personalised investment plan is created, combining a mix of investments chosen by the same team that looks after Barclays’ wealthiest clients 
 4 The customer can see how their money will be invested and how it will change over time/as they get closer to their goal. It will also show them how achievable their goal is and make sure that, where possible, they’re investing in a tax-efficient way
 5 If the customer proceeds with the plan, their investments will be actively managed, involving performance tracking and trading as would be done by a fund manager
 6 The customer will be kept updated, and given dedicated support online or over the phone with the option to make any changes as and when is necessary. 
 7 An annual review of the plan will be given to make sure it is still right for the customer’s needs and changes may be made
Source: Barclays 

How much does it cost? 

The personalised investment plan is free to set up. Customers will only be charged once the accounts are live and money has been invested.

Once a portfolio is set up, ongoing charges will range from 1.39 per cent to 1.59 per cent per year, which is charged based on the value of investments and split into two service costs and product costs.

The service cost is fixed at 0.95 per cent (+ VAT) and covers planning, investing and safekeeping costs. 

The product costs cover ongoing fund management fees and transaction fees and will range between 0.25 and 0.45 per cent, depending on which funds are chosen for a customer’s personalised investment plan. 

Barclays Plan & Invest charges 
Service cost 0.95 + VAT = 1.14 per cent
Product cost  0.25-0.45 per cent 
Total annual cost  1.39-1.59 per cent (inc. VAT) 
Source: Barclays 

Based on the table above, someone with a goal of reaching £100,00 in 15 years time, with a one-off cash payment of £10,000 and regular monthly payments of £300 can expect to pay the following fees.

In their first year, the 1.14 per cent service cost would be £419.34 while the 0.40% product cost would be £148.42, making a total of £567.76.

The average annual total cost over the fifteen years would be around £1,043.95. 

Is it limited to only Barclays funds?

The Plan & Invest portfolios have a mix of active and passive funds and are not limited to Barclays products. 

Some examples of the passive funds that may be in a customer’s portfolio are iShares Japan Equity Index fund and iShares Europe ex-UK Index fund.

Portfolios may also include actively managed funds such as GlobalAccess Europe (ex-UK) Alpha fund (which comprises managers from Allianz Global Investors, Invesco Perpetual and Blackrock) and the GlobalAccess US Equity fund (which has managers from Ceredex Value Advisors, T. Rowe Price and Alliance Bernstein).

Within a typical Plan & Invest portfolio, there will be around 15 different fund management companies featured. 

How does it differ from rival offerings?

Unlike many robo-advice providers, such as Nutmeg and MoneyFarm, Barclays will adapt the investment plan to any changes in the market or the customer’s circumstances and check in with them at least once a year.

This is to make sure the investments are still right for the customer’s needs and that they’re making the most of their tax allowances. 

If anything needs to change, for example if they would benefit from moving their investments into an Isa account, Barclays will take care of it.

Similarly, if a customer was to get a job promotion, they can input this update and the portfolio will be altered accordingly. This can be done at any time, and not just during the annual review. 

The portfolio is also tailored to the customer rather than choosing from a small number of risk-rated portfolios. 

While every customer will be given one of five risk ratings, the investments chosen will also depend on their goal, how much money they’re putting in each month and what they want to achieve, and by when. 

Over time as a customer starts to near their goal, and as they complete a detailed check-up at least once a year, the portfolio is adjusted. Barclays says any given portfolio could follow one of over 10,000 different investment paths.  

What’s next? 

Klee said: ‘The need for more people to be able to access investment advice and have the right tools to manage their finances online and plan for the future has never been clearer. 

‘We see a huge opportunity to combine the best of our human and digital investment expertise to benefit all of our customers.

‘Looking ahead to the future, I want to go further and create a digital platform where people can manage all of their finances in one place, with the option to pay for both digital and direct access to our other investment and financial planning experts.’ 

With your Plan & Invest account, you can see a breakdown of where your money is invested as well as real-time trades such as new sales and purchases and where they are coming from

With your Plan & Invest account, you can see a breakdown of where your money is invested as well as real-time trades such as new sales and purchases and where they are coming from

This is Money verdict

The simplicity of using the Plan & Invest service is definitely a plus and it’s good to know your money is the hands of the experts behind Barclays’ wealth management service.

However some of the steps seem a little too simple – for example its sections on assessing your investment knowledge and attitude to risk – and it’s difficult to see how your plan is personalised based on such a limited amount of interrogation.

It is also one of the more expensive options available when MoneyFarm’s charges, for example, start at 0.70 per cent for a minimum investment of £500, plus 0.39 per cent for investment and market spread costs. The costs goes down to as little as 0.40 per cent for sums above £500,001.

As of yet there is also no way of saying whether you’d like to invest in responsible funds – an area of the market that has risen in popularity in recent years, especially among millennials, who are probably part of the bank’s main target audience for this service.

Nonetheless, it’s good to see where your money is invested in real time as new sales and purchases are made and the asset class breakdown provides a means of understanding what is deemed risky and what’s not – which may encourage novice investors to do some more research.

While Barclays has certainly delivered something different, it’s hard to say just yet whether the cost – at more than double the average charge for the likes of a Nutmeg, MoneyFarm or Wealthify account – is worth it.

Find a financial adviser you can trust with This is Money’s help

Whether you are investing to build your wealth, want your pension to fund the retirement you hope for, or are considering passing on an inheritance, it helps to have someone on your side with an in-depth knowledge of tax, investing and how to make financial plans.

The value in good independent financial advice is that it will continue to pay off for many years to come.

Many of our readers recognise this, but one of the things they regularly ask us for is help in finding an adviser that they can trust.

This is Money has partnered with Flying Colours Life to help people find an adviser. It specialises in financial lifestyle planning and helping people to find high quality trustworthy advice. 

Flying Colours Life’s approved advisers offer a free no-obligation consultation, so you can work out if they can help you. If you don’t feel that they are right for you, there is no pressure to see them again.

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

You’ve been meaning to start investing but are paralysed by choice? ADRIAN LOWERY’s five tips


You have decided savings rates are just too poor and you want to invest. 

Whether you have taken financial advice or not, you have looked at your pension arrangements and your cash savings, you’ve considered the risks, you can lock your money away for at least five years and want to start an investing Isa. 

But you’re paralysed by choice and uncertainty: both over which investing Isa account to sign up for and what to invest in. You’re not alone.

There are ways to just ‘get it done’. These tactics are not perfect. But take the satisfaction of action and refine it over time.

Ready to take the plunge? Many younger savers are turning to the stock market

1. Quick and easy app or online Isa platform?

The newer apps take all the pain away but have limited choices and flexibility. The leading online investing platforms offer more choice and control but take a little more effort. You don’t want the effort? Fine, go to 2. You want more control? Go to 3.

2. Choose your investing app

The problem with apps like Moneybox, Wealthify, Nutmeg, Moneyfarm and Wealthsimple is that they are very difficult to compare. Both because the in-house portfolios that they match to your risk profile are not always directly comparable, and because the performance of those funds is not especially transparent to non-customers. 

There is some evidence to suggest that Wealthify’s and Wealthsimple’s funds are good performers – or at least were a year or two ago. But my answer is: just choose the cheapest one.  

Any investing app has to begin by making up the fee it and its funds are charging you before it makes you any money. It’s the one number you can be absolutely sure of.

Be wary of monthly or annual fees – I just don’t like them. Look for the lowest possible percentage fee, and check you are happy with the shape of the portfolio they are offering you.

I plumped for eVestor, to which I send £150 a month: it has three portfolios depending on your risk attitude and (for what I want) very low fees. I am invested in their riskiest portfolio with large holdings in overseas equities and it’s 3 per cent up over the last 21 months – fees included. 

Hardly earth-shattering, but we have just had a huge stock market crash from which many markets are only partially recovered. And it’s better than the c.1.5 per cent I’d’ve got in a savings account. Though perhaps not as good as the best regular savers at 5 per cent – but they’ve now been largely axed too. 

As we are looking at a five-year minimum horizon, I would hope after another three years that returns will be higher.

3. You want something a bit more sophisticated? 

Hargreaves Lansdown, AJ Bell, Charles Stanley, Interactive Investor, Fidelity… ? Again – and this is just my opinion – just go for the cheapest.

But you must decide what you want to invest in and how. 

First, as in a lump sum or a regular amount, because some are better fee-wise for the former and some the latter. You should be employing a buy-and-hold strategy so ignore ones that are cheap for lots of trades – you’re not a day trader, or a month trader. Or ideally, even a year trader.

Second, as in what vehicles – because to add to the confusion these platforms charge differently for different things. For me: individual shares? Too risky and time consuming. Funds? Too expensive. Tracker funds? Maybe but a bold bet in volatile times. The answer: investment trusts. 

They offer exposure to all sectors, geographies and asset classes with – if you choose carefully – the added returns and security a good fund manager can provide. They often outperform similar open-ended funds, especially over the long term, but are frequently cheaper in terms of fees. 

The downside? You pay stamp duty because they are shares, and they are more vulnerable to stock market sentiment than funds. But for me, I just need to cut down the field.

Do your research and choose 10 investment trusts that reflect your risk outlook and what you expect to happen in the world over the next five years (or preferably 10 or 20) and be done with it. And don’t quite throw away the key, but the idea is buy and sit tight. 

With this approach I found iWeb to be the cheapest option. They’re not paying me, I’m just saying.

Investment trusts are listed funds that allow you to get exposure to certain sectors and geographies - like the US stock market.

Investment trusts are listed funds that allow you to get exposure to certain sectors and geographies – like the US stock market.

4. Which investment trusts?  

There’s a lot of information out there. Morningstar and Trustnet have immense amounts of data and info. And our own website as well as many others have lots of features on this subject – particularly given the tumultuous first six months of 2020. Investors Chronicle has a lot of stuff on investment trusts.

We have just had a Black Swan event, so in many ways with the financial and business world having undergone a big shakedown, it’s actually a good time to start investing. But that’s not to say there won’t be a few flying feathers yet. The current levels of uncertainty mean that any new investor should be cautious in their approach, particularly if you have only a five-year horizon, rather than a 20-year one. 

There are ways of diversifying into everything from bonds to gold to US equities to biotech, either by choosing trusts that are themselves diversified, or specialist ones to focus on certain assets or countries or sectors. 

You can choose good ‘steady Eddy’ investment trusts to protect against short-term volatility if you don’t like it. And some will continue to pay dividends, a rarity in the current climate. ITs are particularly strong at this and income can make up for irregular capital growth.

Short-term stock market volatility is scary, but if you choose your investments sensibly, hold tight and give it at least 10 years, you stand a good chance of making decent returns.

Short-term stock market volatility is scary, but if you choose your investments sensibly, hold tight and give it at least 10 years, you stand a good chance of making decent returns.

5. ‘This now sounds scary, I’m having second thoughts…’ 

The calculation you have to make is this. £100 a month put into a savings account at 1 per cent for five years will make you £154.94. In other words, there will be £6,154.94 in there at the end. If inflation averages above 1 per cent a year your savings after five years will be worth less than they were at the start. 

At 3 per cent annual investment returns you will have £6,480.54. At 6 per cent, which is eminently do-able with the right choices, £7,011.22. 

You might of course have lost money – but you’ve already considered this risk and taken steps to minimise it. You can also start to de-risk as you near the end of your investment term in order to protect against nasty shocks.

For some, that possible £850 or so more return is just not worth the risk of losing capital. Over 10 and 20 years the sums are much more convincing for the saver-turned-investor. 

 For the young investor who is willing to lock away for 30 years,the power of compound returns make it compelling.

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

You’ve been meaning to start investing but are paralysed by choice? ADRIAN LOWERY’s five tips


You have decided savings rates are just too poor and you want to invest. 

Whether you have taken financial advice or not, you have looked at your pension arrangements and your cash savings, you’ve considered the risks, you can lock your money away for at least five years and want to start an investing Isa. 

But you’re paralysed by choice and uncertainty: both over which investing Isa account to sign up for and what to invest in. You’re not alone.

There are ways to just ‘get it done’. These tactics are not perfect. But take the satisfaction of action and refine it over time.

Ready to take the plunge? Many younger savers are turning to the stock market

1. Quick and easy app or online Isa platform?

The newer apps take all the pain away but have limited choices and flexibility. The leading online investing platforms offer more choice and control but take a little more effort. You don’t want the effort? Fine, go to 2. You want more control? Go to 3.

2. Choose your investing app

The problem with apps like Moneybox, Wealthify, Nutmeg, Moneyfarm and Wealthsimple is that they are very difficult to compare. Both because the in-house funds that they match to your risk profile are unique and difficult to compare, and because the performance of those funds is not especially transparent to non-customers. 

There is some evidence to suggest that Wealthify’s and Wealthsimple’s funds are good performers – or at least were a year or two ago. But my answer is: just choose the cheapest one.  

Any investing platform has to begin by making up the fee it and its funds are charging you before it makes you any money. It’s the one number you can be absolutely sure of.

Be wary of monthly or annual fees – I just don’t like them. Look for the lowest possible percentage fee, and check you are happy with the shape of the portfolio they are offering you.

I plumped for eVestor, to which I send £150 a month: it has three portfolios depending on your risk attitude and (for what I want) very low fees. I am invested in their riskiest portfolio with large holdings in overseas equities and it’s 3 per cent up over the last 21 months – fees included. 

Hardly earth-shattering, but we have just had a huge stock market crash from which many markets are very partially recovered. And it’s better than the c.1.5 per cent I’d’ve got in a savings account. Though perhaps not as good as the best regular savers at 5 per cent – but they’ve now been largely axed too. 

As we are looking at a five-year minimum horizon, I would hope after another three years that this Isa will be doing better by then.

3. You want something a bit more sophisticated? 

Hargreaves Lansdown, AJ Bell, Charles Stanley, Interactive Investor, Fidelity… ? Again – and this is just my opinion – just go for the cheapest.

But you must decide what you want to invest in and how. 

First, as in a lump sum or a regular amount, because some are better fee-wise for the former and some the latter. You should be employing a buy-and-hold strategy so ignore ones that are cheap for lots of trades – you’re not a day trader, or a month trader. Or ideally, even a year trader.

Second, as in what vehicles – because to add to the confusion these platforms charge differently for different things. For me: individual shares? Too risky and time consuming. Funds? Too expensive. Tracker funds? Maybe but a bold bet in volatile times. The answer: investment trusts. 

They offer exposure to all sectors, geographies and asset classes with – if you choose carefully – the added returns and security a good fund manager can provide. They often outperform similar open-ended funds, especially over the long term, but are frequently cheaper in terms of fees. 

The downside? You pay stamp duty because they are shares, and they are more vulnerable to stock market sentiment than funds. But for me, I just need to cut down the field.

Do your research and choose 10 investment trusts that reflect your risk outlook and what you expect to happen in the world over the next five years (or preferably 10 or 20) and be done with it. And don’t quite throw away the key, but the idea is buy and sit tight. 

With this approach I found iWeb to be the cheapest option. They’re not paying me, I’m just saying.

Investment trusts are listed funds that allow you to get exposure to certain sectors and geographies - like the US stock market.

Investment trusts are listed funds that allow you to get exposure to certain sectors and geographies – like the US stock market.

4. Which investment trusts?  

There’s a lot of information out there. Morningstar and Trustnet have immense amounts of data and info. And our own website as well as many others have lots of features on this subject – particularly given the tumultuous first six months of 2020. Investors Chronicle has a lot of stuff on investment trusts.

We have just had a Black Swan event, so in many ways with the financial and business world having undergone a big shakedown, it’s actually a good time to start investing. But that’s not to say there won’t be a few flying feathers yet. The current levels of uncertainty mean that any new investor should be cautious in their approach, particularly if you have only a five-year horizon, rather than a 20-year one. 

There are ways of diversifying into everything from bonds to gold to US equities to biotech, either by choosing trusts that are themselves diversified, or specialist ones to focus on certain assets or countries or sectors. 

You can choose good ‘steady Eddy’ investment trusts to protect against short-term volatility if you don’t like it. And some will continue to pay dividends, a rarity in the current climate. ITs are particularly strong at this and income can make up for irregular capital growth.

Short-term stock market volatility is scary, but if you choose your investments sensibly, hold tight and give it at least 10 years, you stand a good chance of making decent returns.

Short-term stock market volatility is scary, but if you choose your investments sensibly, hold tight and give it at least 10 years, you stand a good chance of making decent returns.

5. ‘This now sounds scary, I’m having second thoughts…’ 

The calculation you have to make is this. £100 a month put into a savings account at 1 per cent for five years will make you £154.94. In other words, there will be £6,154.94 in there at the end. If inflation averages above 1 per cent you will have lost money. 

At 3 per cent investment returns you will have £6,480.54. At 6 per cent, which is eminently do-able with the right choices, £7,011.22. 

You might of course have lost money – but you’ve already considered this risk and taken steps to minimise it. You can also start to de-risk as you near the end of your investment term in order to protect against nasty shocks.

For some, that possible c.£850 more return is just not worth the risk of losing capital. Over 10 and 20 years the sums are more convincing for the saver-turned-investor.

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

CAPITAL GEARING TRUST: Long-term growth and cash preservation


CAPITAL GEARING TRUST: Focusing on long-term growth and preserving cash rather than providing an income

WHAT IS IT?

It aims to grow investors’ money over the long term, rather than providing an income, and particularly focuses on preserving that cash.  Unlike many trusts, which invest in individual stocks and assets, Capital Gearing spreads investors’ money across other funds, bonds, commodities and cash.

WHAT DOES IT INVEST IN?

The trust’s largest fund holdings include a Vanguard fund which tracks the Japanese stock market, a FTSE 100 tracker fund, and German property fund Vonovia. 

The largest proportion of the fund, at 27 per cent, is invested in index-linked Government bonds, which are tied to inflation.

WHAT DO THE EXPERTS LIKE?

Peter Spiller, the fund’s manager, is the longest-serving in the sector, having been leading it for 38 years. 

Dzmitry Lipski at Interactive Investor says: ‘Spiller’s inherently cautious outlook has meant it has an outstanding record of capital preservation.’

ANY DOWNSIDES?

The cautious approach does mean investors may miss out on the more impressive returns when the market is rising.

INVESTMENT EXTRA: Can investing in banks make you a tuppence or two? 


Bankers are rarely popular, attracting scorn and envy in equal measure. But lately, bank shares have acquired a new fan base. 

The private investor clients of platforms such as Hargreaves Lansdown have been snapping up these stocks, persuaded that they are set to recover from their current lows.

In particular, they hope that Lloyds shares will sparkle when a new chief executive takes over from António Horta-Osório, who will be standing down next year.

Investors hope that Lloyds shares will sparkle when a new chief executive takes over from António Horta-Osório (pictured right) , who will be standing down next year

However, it is hard to see how any of the banks can rapidly or easily break free from pandemic-induced adversity.

Inflation is subdued and interest rates are close to zero, conditions that erode bank profit margins. A No Deal Brexit represents another threat to revenues.

Moreover, the Government has compelled the banks to protect businesses and consumers from the pandemic’s wrecking ball.

Some analysts say that they have been treated almost like nationalised entities, although the Treasury now only has a stake in RBS as the Government holding in Lloyds has been sold.

Almost a million companies have received bank loans under Coronavirus support schemes.

The Government guarantees part of this lending, but some of the recipients would not under normal circumstances have been seen as a reasonable credit risk.

Close to two million homebuyers are benefiting from mortgage holidays, and people have been allowed temporarily to freeze their credit card and other repayments.

In the spring, banks were also compelled by the Government to suspend £8billion in dividend payouts. This move provoked anger among investors in Asia, HSBC’s most profitable area of operation.

HSBC also controversially backed the Chinese regime’s new security laws covering Hong Kong, despite opposition from both the UK and American governments.

In light of such problems, its poor performance is of little wonder. Its shares stand at 378p, lower than in 2009 at the nadir of the global financial crisis.

Donald Trump is contemplating a crackdown on Hong Kong that would cause more pain for HSBC and Standard Chartered, which likewise makes most of its money in Asia.

Other bank shares have also been left behind in the bounce back that followed the March market rout.

Barclays has fared a little better, however, because its investment banking arm has been involved in £3.3billion worth of fundraising drives for major firms.

RBS shares have been hard hit since lockdown, but longer term, there are high hopes for its new chief executive, Alison Rose.

Russ Mould of AJ Bell sums it up: ‘The banks have horribly underperformed.’

He contends that the pressures will not lessen, since interest rates may turn negative, and regulators are most unlikely to slacken surveillance of the industry.

Challenger banks will also be seizing business from the major High Street names. In the worst-case scenario, Mould fears that the UK sector could face the same dispiriting fate as the Japanese banks, whose share prices remain near their 1989 levels.

Of course, the big banks are trying to respond. Lloyds, the owner of Halifax and Bank of Scotland, is Britain’s largest mortgage lender. This leaves it exposed to a house price downturn.

But it has a joint venture with Schroders which could be the perfect platform for a major push into wealth management. 

This type of diversification may now be possible, given that the bank’s £22billion PPI mis-selling debacle appears finally to have been resolved.

It has to be acknowledged that pre-lockdown, Lloyds and the other banks were in a far more solid financial state than before the global financial crisis of 2008.

Investors pursuing bank shares may also suspect, like Andy Haldane, the Bank of England’s chief economist, that the recession will be V-shaped, with a sharp descent, then a swift recovery.

Yet even if recovery turns out to be rapid, analysts point out that the banks would still be left with the bad debts of the companies that have failed in past weeks.

As a result of such factors, Mould does not see bank shares as a long-term hold. ‘They are stocks to rent and trade, for those who regularly monitor their holdings.’ He adds that it is possible that banks could announce a dividend this year, payable in 2021.

Anyone who leaves stock selection decisions to the professionals may be relieved to learn that global equity managers have been retreating from bank stocks, shunning HSBC in particular, according to Copley Fund Research.

But bank shares still make up as much as 17 per cent of the portfolios of some well-known funds.

Morningstar data shows that Schroder Recovery, St James’s Place UK Growth and Jupiter UK Alpha hold 15-16 per cent.

Jason Hollands of Bestinvest explains that some managers bought these holdings post-election when it seemed the Government’s majority would help secure a decent Brexit deal and facilitate the levelling up of Britain.

Bank shares would be boosted if such goals are met, but the magnitude of the challenge is now so huge that investors need not only patience but also lots of luck.

Popular shares – Ocado

Ocado is one of the biggest risers in the FTSE 350 since the Covid-19 pandemic struck.

The online supermarket’s shares have jumped nearly 90pc since late February as demand for deliveries soared.

Investors will be looking for signs of further progress when it reports half-year results on Tuesday after cheering the City with impressive 40 per cent revenue growth during lockdown.

Its website was so popular it introduced virtual queuing, paused the app and prioritised loyal and vulnerable customers.

Overall half-year sales growth is expected to be around 27 per cent, according to Peel Hunt.

Next week investors will get the first opportunity to see how that sales growth translates into profit. Costs will rise because of the need to accelerate the building of warehouse capacity, buy vans and employ more drivers.

But some money will be saved on marketing, which is no longer needed as families flock to Ocado’s website, and reduced offers in lockdown will help margins.

The City will also look for an update on the Marks & Spencer deal, which launches in September, after claims this week that new customers could be barred from joining by the ongoing capacity constraints. 

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

Fundsmith fails to make Hargreaves Lansdown’s new Wealth Shortlist


Hargreaves Lansdown has relaunched its best buy fund list just over a year after it was heavily criticised for sticking with Neil Woodford’s stricken fund for too long.

The new Wealth Shortlist replaces Britain’s biggest DIY investing platform’s Wealth 50 list, but there is still no place for one of Britain’s favourite funds, Terry Smith’s Fundsmith Equity.

Hargreaves said that Fundsmith had ‘an impressive track record’ and would have made the cut but it could not get the regular access to the manager and updates it needed to feature on the list.

Terry Smith’s Fundsmith Equity is an investor favourite that has delievered strong performance over the years, but it has once again failed to make Hargreaves Lansdown’s best buy list 

Hargreaves Lansdown said the new Wealth Shortlist and its Fund Finder tool came after it had ‘listened and learned and taken action’ over previous criticism of its highly influential fund recommendations.

No funds have been removed from the previous Wealth 50 but 17 new funds have been added. Another highly popular fund manager Lindsell Train also remains off the list, due to its funds’ large holdings of Hargreaves Lansdown shares.

Emma Wall, head of investment analysis at Hargreaves Lansdown, said: ‘Our clients own more than 10 per cent of Fundsmith Equity and it is one of the most popular funds on our platform.

‘We really like the clear philosophy and consistent process – as well as the impressive track record. However, it is a requirement for our analysis that we can we have regular access to the fund manager and monthly holdings and liquidity data.

‘We need this data in order to do full qualitative and quantitative analysis of the fund and the manager’s track record, determine how we might expect the fund to perform in the future, and keep up to date with portfolio changes.

‘Some fund managers do not provide this data on a regular enough basis, and therefore we are unable to do the necessary analysis, including Fundsmith who prefer to provide data on a six-month basis rather than monthly.’

‘Analysis of the latest data we have suggests that it is likely Fundsmith would make the list, but we can’t make exceptions to our enhanced commitment to governance and risk management.’

The Wealth Shortlist has some passive tracker funds but still contains no investment trusts.

Hargreaves Lansdown has previously said that as investment trusts are listed on the stock exchange – meaning that investors must buy shares to put money in – they may struggle to cope with demand from a flood of savers’ cash when they are tipped.

Rival DIY investing platforms produce their own recommended lists of funds and investment trusts, including Interactive Investor, AJ Bell, Fidelity, Share Centre and Chelsea Financial Services’ Fund Calibre ratings.

Investing platforms’ best buy lists have come under greater scrutiny in the wake of the collapse of Neil Woodford’s Equity Income fund.

The fallen star investor’s flagship fund was frozen in summer last year, after poor performance and a drift in its investing style towards risky unlisted companies saw investors rush for the exit.

Neil Woodford's fund collapsed after investors rushed to the exit following a bout of poor performance and a drift into risky unlisted companies

Neil Woodford’s fund collapsed after investors rushed to the exit following a bout of poor performance and a drift into risky unlisted companies 

Hargreaves Lansdown had stuck by Woodford and continued to recommend his fund up until the shutters were pulled down, arguing that his long investment track record justified the belief that he could turn things round.

Hargreaves openly discussed why it was sticking with Woodford in January 2019 – five months before the fund was frozen – in response to criticism for doing so when it slimed down the Wealth 150 to a Wealth 50.

However, after investors were locked into Woodford’s fund last June, some of its customers said the platform should have more clearly flagged how far Woodford had drifted from the large company income investing that had made his reputation.

The DIY investing giant apologised to its investors and has since overhauled its selection process, although it said the new list ws evolution not revolution.

It says it has placed a greater focus on transparency, to help investors understand why funds have been chosen, and also looked at performance potential.

In a sign that it was looking to avoid a repeat of the Woodford saga, Hargreaves said analysis considered the ‘processes and the culture of management companies’ and that it had introduced ‘further risk monitoring and control – this includes analysis of additional data points and building further challenge into the investment process’.

Separate committees will also consider funds that are added to or removed from the Wealth Shortlist and those that are bought by its own-brand multi-manager funds.

Again with Woodford, Hargreaves Lansdown had come under fire for a potential conflict of interest between the fund appearing on its best buy list and in its fund-of-funds.

Holly Mackay, of investing website Boring Money, said: ‘It’s interesting that Hargreaves Lansdown has backtracked on its long-held insistence that any funds in their shortlist have to negotiate preferential discounts, or take a hike.

‘Ironically, whilst this removes any talk of ‘pay to play’ behaviour, it also diminishes the power of Hargreaves’ big boot when it comes to getting the cheapest fees in town for their customers.”

The Wealth Shortlist has launched with 68 funds, whereas the Wealth 50 actually had 51.

Hargreaves had stood accused of only featuring funds that offered it a discount on charges and said that 16 of the 68 Wealth Shortlist funds do not have discounts or loyalty bonuses.

A new charges comparison feature should help investors looking to push down costs that eat into their returns.

Ms Wall said: ‘We have been running the new investment process for some months and honed the Wealth 50 to the funds in which we had the highest conviction.

‘Therefore today we are announcing no further removals, only 17 new additions to form the Wealth Shortlist which are the produce of our new enhanced investment process.

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UK shares and funds to invest like Warren Buffett


The how to invest like Warren Buffett article is a stalwart of investment writing.

There will have been hundreds of thousands if not millions of words written on how to emulate the world’s most famous investor over the years – and This is Money has certainly contributed a few of them.

Yet, the concept behind these articles is flawed. Because to invest like the man dubbed the Sage of Omaha has done for the past few decades requires you to be Warren Buffett.

Buffett ceased being an investor many years ago and became a multi-billionaire businessman with the ability to strike investment deals that none of us could hope to do.

Investing like Buffett is a commonly followed philosophy but the world’s most famous investor can strike the kind of deal that you couldn’t for your Isa

Companies want Buffett on board and will give him a better deal in backing them than you or I could get by buying their stock market-listed shares. Meanwhile, founders and family owners will sell to Buffett when they wouldn’t to others.

In the financial crisis era, Buffett famously struck rescue deals with three of the world’s most powerful companies, Goldman Sachs, General Electric and Bank of America that very much favoured his Berkshire Hathaway investment vehicle.

In return for a Buffett bailout, he got preferred stock and warrants that gave him the right to swap to ordinary shares in the future and make a huge profit.

Good luck on striking a similar deal for your Isa.

So, why do we still write about investing like Buffett and companies that might pass his investment test?

Largely, because despite a gradual transformation from investor, to businessman, to possibly the world’s most powerful dealmaker, Buffett has stuck fairly true to some guiding principles, which with a bit of honing through the years have delivered a solid guide to identifying good and robust companies.

Buffett outlines his philosophy as buying companies that he would be happy to hold forever, because they have strong finances, a robust business model, a so-called ‘moat’ – which means their business cannot be easily replicated – and a simplicity that means you can understand what they do.

Set aside that some of this doesn’t seem to really chime with striking sweet deals with stricken financial firms, and you can use it try to identify shares that may not always be the best performers but should deliver solid compound growth over time.

To that end, an interesting stock screen from Simon McGarry, senior equity analyst at Canaccord Genuity Wealth, came my way this week with 14 UK-listed companies that he thinks pass the test of Would Buffett Invest?

He looked for companies that had some key Buffett criteria: sound management with consistently high cash flows, demonstrable earnings capacity, prudent balance sheets, a fair price, and simplicity.

Some of these metrics involved running the numbers, others such as the ‘simple business’ test are a more arbitrary concept. I will publish the criteria in more detail and how the shares scored in the online version of this column.

The screen threw up some names many will recognise and quite a few that most won’t, belying the myth that Buffett-style investing is all about big brands the person on the street knows.

They ranged from FTSE 100 giant RELX (previously known as Reed Elsevier), to investor darling Ashtead, packaging firm DS Smith, IT specialist Computacenter and gifts and greeting cards firm IG Design.

THE UK SHARES THAT PASSED THE BUFFETT SCREEN TEST
Company Market cap Price earnings ratio EPS growth Dividend yield Dividend cover Free cash flow yield
RELX PLC     36,346  20.2 0.30% 2.50% 2 5.00%
CRH     20,603  19 -5.70% 2.90% 1.9 4.80%
Ashtead Group     10,855  18.4 -24.90% 1.70% 3.4 5.00%
DCC        6,691  20.1 -4.70% 2.30% 2.2 5.00%
Bunzl        6,362  18.5 -11.80% 2.10% 2.7 4.70%
DS Smith        4,786  12.9 -15.80% 4.30% 1.7 8.20%
Computacenter        1,772  17.6 -3.10% 2.30% 2.5 5.50%
UDG Healthcare        1,756  17.3 14.20% 2.00% 2.9 4.70%
Grafton        1,557  15.7 -13.00% 1.80% 3.5 5.30%
Synthomer        1,334  13.1 0.10% 2.80% 2.7 6.80%
Breedon Group        1,297  18.1 -3.40% 0.40% 13.3 5.10%
RHI Magnesita        1,153  7.4 -12.70% 2.20% 6 12.30%
Hill & Smith Holding            993  17.2 -2.60% 2.20% 2.6 4.80%
IG Design            517  15.5 12.50% 2.30% 2.4 4.80%
Source:  Canaccord Genuity Wealth (June 2020): Screen used 12 month forward ratios

If you do like to invest in individual company shares, screens such as this provide an interesting jumping off point.

If you want to find some, an internet search can be your friend but be very wary of who you trust out there and consider whether there is an ulterior motive. Watch out for the bulletin boards where shares are ramped and any boiler room operations pushing dodgy operations.

Reputable investment firms regularly publish screens and we will occasionally run articles on them, as do This is Money’s investing press rivals. A good paid-for option to consider is share data specialist Stockopedia, with its Guru screens.

Alternatively, if it’s Buffett that you want to invest like and you prefer not to dabble in individual shares, you can look for a fund or investment trust manager of that mould.

The two most famous UK managers of this ilk are Terry Smith, of Fundsmith, and Nick Train, of Finsbury Growth and Income trust and the Lindsell Train funds, along with his partner Michael Lindsell.

There is even a Buffettology fund (disclosure, I invest in this) run by Keith Ashworth-Lord, a veteran British investor, who follows the style of investing that is championed by Buffett and holds 25 to 30 UK companies of all sizes that he feels fits the bill.

Meanwhile, broker the Share Centre highlighted last year another two funds that it feels suit the Buffett principals, Artemis Income and Liontrust Special Situations.

Whether a portfolio of the 14 shares the Buffett screen turned up, or any of the funds mentioned above, will turn out to be a wise investment is something only time will tell.

But, as ever, I would urge anyone considering buying them to carefully do your own research, because you can guarantee that’s what Warren Buffett would do before he invested.

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

Ugly FTSE 100 forecast of 16% fall in dividends this year


Income investors face a 16 per cent drop in dividends from Britain’s top companies this year as they attempt to weather the Covid-19 crisis, a new forecast shows.

Nearly half of FTSE 100 firms have now cut or suspended shareholder rewards as the coronovirus pandemic takes a dramatic toll on business activity.

The other half have kept or increased their dividends, but payouts are predicted to hit £63billion in 2020, the lowest total since 2015, according to a forecast by financial services firm AJ Bell.

Only Auto Trader, DS Smith, Halma and National Grid have yet to declare their hands.

 Covid-19 impact: Nearly half of FTSE 100 firms have now cut or suspended shareholder rewards for 2020

Many investors rely on income from dividends, which can bring great returns, particularly if you keep reinvesting them in more shares. 

We take a closer look at the recent damage, along with practical tips on how to protect your portfolio from shrinking dividends, and where you could look to replace them.

Dividend cutters and keepers: Find a full breakdown for all FTSE 100 firms below 

How has the coronavirus crisis affected dividends?

Dividend payments from FTSE 100 firms are forecast to drop by £9.5billion or 11 per cent for the 2019 trading year, then by another 16 per cent in 2020 – see the chart below.

‘This can be seen two ways,’ says Russ Mould, investment director at AJ Bell. 

‘Optimists will point to the resilience of dividend payments, as even a total drop of 25 per cent from 2018 to 2020 – providing forecasts for this year prove accurate – could be an awful lot worse under the economic circumstances.

‘Forty-eight ongoing or increased payments point to the resilience of some companies’ financial strength and business models – although some of those declared and paid out for the second half of 2019 before the viral outbreak took hold in the West.

‘So, their planned payments for the first and second halves of 2020 will be particularly interesting.’

But he goes on: ‘The more bearish view is that the forecasts for 2020 are simply too optimistic. 

‘A 16 per cent dividend cut for 2020 does not seem much in the context of what the OECD forecasts will be the sharpest global economic downturn for a century.

Dividend total in 2020 forecast to be lowest since 2015

Source: AJ Bell, using analysis of company accounts, Sharecast, and consensus analysts’ forecasts. 2020 and 2021 estimates adjusted for FTSE reshuffle due on 22 June

Source: AJ Bell, using analysis of company accounts, Sharecast, and consensus analysts’ forecasts. 2020 and 2021 estimates adjusted for FTSE reshuffle due on 22 June

‘In addition, the fact that 48 cuts or deferrals against 48 decisions to hold or increase still translates into a 25 per cent, two-year cut shows that the FTSE 100’s total dividend payment was reliant on a relatively low number of companies whose decisions had a disproportionate influence.

‘The cuts from Shell, HSBC, Lloyds, BT and Imperial Tobacco and the deferral from Glencore had a particularly big impact on the overall forecasts.’

Mould notes that even now the 10 biggest payers are expected to generate 54 per cent of total dividends in 2020 and the top 20 some 73 per cent of the forecast total.

He warns that investors buying UK equities for their yield, either through individual stocks or a tracker fund, need to beware of concentration risk and carry out research on the biggest dividend issuers.

Russ Mould: 'Optimists will point to the resilience of dividend payments'

Russ Mould: ‘Optimists will point to the resilience of dividend payments’

Mould also says that the FTSE 100’s forecast payout ratio – dividends as a percentage of company earnings – is high at 69 per cent.

Meanwhile, he says dividend cover – a yardstick measuring whether profits forecast for next year would cover a company’s most recent total annual dividend – is lower than ideal at 1.44 times.

Ideally, dividend cover should work out at 2.0 or more. 

Companies that cannot comfortably afford their dividend might have to pay them out of capital or debt, or slash their annual payout.

‘A longer-than-expected economic downturn could therefore place further pressure on dividend payments as profits and cash flows are squeezed further,’ says Mould.

‘High pay-out ratios and low cover are particularly noticeable at the highest yielders, even if some allowances can be made for the relative stability of some firms’ business models or the solidity of their cash flows and balance sheets.’ 

Ten highest and lowest yielding stocks in the FTSE 100

Forecast for 2020: Source AJ Bell, using Sharecast, consensus analysts' forecasts and Refinitiv data

Forecast for 2020: Source AJ Bell, using Sharecast, consensus analysts’ forecasts and Refinitiv data

What should you do if dividend cuts are hitting your income?

AJ Bell offers the following tips to income investors.

1. Think before you sell: If a company you own has announced a dividend cut then don’t just sell as a knee-jerk reaction.

The share price will likely dip on the news that the payout has been cut, meaning you could be locking in a capital loss on top of the dividend cut.

2. Check your funds: Lots of investors who own funds, rather than direct shares, will not yet have seen the impact of dividend cuts, as they haven’t had their first payout from the fund since the crisis hit.

Check with the fund manager though, as lots have given an indication of how much they will have been affected by the cuts.

Free investing guides

3. Think about investment trusts: While open-ended funds have to pay out all the income they receive each year, investment trusts are able to hold over 15 per cent of any income in order to boost income in leaner years.

This means they may be able to supplement this year’s income from reserves. However, you need to check with each trust as to what they have in reserves and whether they are inclined to use them.

4. Hunt further: While there have been lots of dividend cuts, particularly across the UK market, there are still lots of companies that have maintained their payouts and are even thriving in the current market.

Whether that’s biotech firms benefiting from their involvement in helping to solve the Covid-19 crisis or IT companies profiting from more people working from home, there is still income out there you just might need to look beyond your current holdings.

5. Think (carefully) about selling capital: If your income has fallen and you really need it to be maintained at the same level you could sell some of the growth you’ve seen in your investments.

Obviously markets are volatile at the moment and you don’t want to lock in a loss. You also need to consider that selling some of the investment now means you have less money earning income in future years, so weigh this up before selling.

Where can you look to replace declining dividends?

Many people have traditionally sought income by investing heavily in FTSE 100 companies paying regular and substantial dividends, according to Dan Mikulskis, partner at pensions consultant LCP.

But he says that even before the current crisis, this strategy was becoming less sustainable as it involved more and more people investing in a steadily narrower range of companies and sectors.

Mikulskis also points to an LCP estimate that £260billion of pension assets will enter income drawdown over the next 10-15 years, creating a pressing structural need to look further afield for income-paying investments.

He suggests three ways to do this, drawing from the practice of professional asset managers investing the trillions of pounds held in UK pension funds, but cautions that investors should consider taking professional financial advice first.

1. Infrastructure: ‘This involves investing in the shares of companies around the world who provide critical infrastructure projects in sectors including transport, energy and utilities.

‘Infrastructure assets tend to have long life spans and stable cash flows, earning income from consumers and businesses that need their services even during times of economic hardship.’

2. High-yield and emerging market debt: ‘Rather than buying shares, this form of investment involves buying the debt of a range of companies and countries.

‘Although high yields tend to be associated with higher risk of default, provided that the portfolio is suitably diversified and well-managed, the additional returns from this form of investment will tend to outweigh the loss from individual defaults.’

3. Private credit: ‘Smaller companies seeking to raise capital can struggle to do so through issuing shares or bonds or through bank lending, but asset managers are increasingly finding that they can generate a return by direct lending to such companies.

‘These loans generate an income in the form of interest. This tends to be a longer-term investment and is less liquid than investing on the bond market but as a result the investor can benefit from an “illiquidity premium”.’

Mikulskis notes it has been difficult or impossible for most private investors to access this sort of investment, as the rules usually prohibit or restrict – for good reason – investment in securities that cannot be publicly traded.

But he says private investors can use investment trusts, as their shares can be traded, and they can also manage cash to smooth payouts and maintain a more stable dividend.

The FTSE 100 dividend cutters and keepers announced so far in 2020 

Source: AJ Bell analysis of company accounts. The total is 102 because both Admiral and Morrison paid ordinary dividends but deferred or cancelled special dividends so they both feature twice, says the firm

Source: AJ Bell analysis of company accounts. The total is 102 because both Admiral and Morrison paid ordinary dividends but deferred or cancelled special dividends so they both feature twice, says the firm

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

FCA bans promotion of mini-bonds for good


City watchdog bans promotion of speculative mini-bonds for good, amid fears investors don’t grasp the risks

  • Mass-marketing of mini-bonds first banned in January, ahead of Isa season
  • They involve buying company debt for a set period in exchange for interest
  • Watchdogs fear investors don’t understand the risks and can’t afford the potential losses they face

Regulators have slapped a permanent ban on firms pushing risky mini-bonds to ordinary investors after thousands lost money in a series of devastating collapses.

The Financial Conduct Authority first prohibited further mass-marketing of the speculative financial products in January, to protect investors ahead of the Isa season.

Today, it confirmed its concerns that mini-bonds – which involve buying company debt for a set period in exchange for regular interest payments – were being promoted to investors who neither understood the risks nor could afford potential losses.

Permanent ban: Regulators fear minibonds were being promoted to ordinary investors who didn’t understand the risks

The move follows heavy lobbying after the collapse of London Capital & Finance swept away the savings of many elderly and casual investors, who were hoodwinked into believing they would receive returns of 8 per cent from tax-free Isas.

Meanwhile, investors in high-profile mini-bonds issued by Mexican food chain Chilango also suffered heavy losses. 

These investment products have always come with serious risk warnings, including from This is Money whenever we write about them. 

With mini-bonds, the money you make back entirely depends on the firms issuing them not going bust. 

Retail bonds work the same way but are listed on the London Stock Exchange’s Orb market, and tradeable before the maturity date.

The FCA has tweaked the rules this time to cover illiquid tradeable bonds, but there are exemptions to its marketing ban for retail bonds that are heavily traded, companies raising funds for their own commercial or industrial activities, and products which fund a single UK income-generating property investment.

Free investing guides

Sheldon Mills, interim executive director of strategy and competition at the FCA, said: ‘We know that investing in these types of products can lead to unexpected and significant loses for investors.

‘We have already taken a wide range of action in order to protect consumers and by making the ban permanent we aim to prevent people investing in complex, high-risk products which are often designed to be hard to understand.

‘Since we introduced the marketing ban we have seen evidence that firms are promoting other types of bonds which are not regularly traded to retail investors.

‘We are very concerned about this and so we have proposed extending the scope of the ban.’

The FCA says its ban will mean that products caught by the rules can only be promoted to investors that firms know are sophisticated or high net worth. 

Its advice to consumers about mini-bonds is here.

TOP SIPPS FOR DIY PENSION INVESTORS



How a global fund lets you invest around the world easily



‘Be greedy when others are fearful’.

There can’t be many investors who don’t know that famous Warren Buffett quote, but the proportion that pay heed to it when the bad times come knocking is probably fairly low.

For some time I’ve said that the next time markets fell 30 per cent, I’d be buying as much as I could.

This was on the basis that while the stock market can continue to fall considerably beyond that, such a drop is usually followed sometime later by a strong bounce back.

My magic 30 per cent number was hit in March, but did I pile in? No, I was circumspect while others were fearful instead of greedy.

I stuck a chunk of cash into my Sipp and Isa around the new tax year, but missed the chance to really make hay while the sun shone on stock markets in lockdown.

I wonder whether some of those newer to investing did make some hefty profits, however.

As markets collapsed in early March, we had a number of questions from people saying they wanted to profit from the crash and buy in while shares were cheap.

That’s not a bad idea in theory, but when you’re staring down the barrel of an unprecedented number of situations being described as unprecedented, you do feel the urge to warn people to play it cautious.

So, it was not without some trepidation that we published an article on 17 March headlined: Think the stock market will bounce back from the coronavirus panic? Here’s how to take advantage

It included a large health warning: ‘What investors must steel themselves for is more potential falls before any gains.’

The good news is that while they will have had some nervy days, anyone who did invest back then didn’t have to steel themselves for too much pain, yet.

The stock market’s rebound from a brutally hard and fast crash has been equally astonishing. The FTSE 100 is up 27 per cent from its 23 March recent low, but America’s S&P 500 has rocketed 43 per cent.

Whether markets slump again or not – and they certainly could – this illustrates the benefits for British investors of not just investing in our home stock market.

Instead, the basic building block of any stock market investment portfolio should be a fund or trust that invests as broadly as possible. One that lets you own the world.

This disadvantage of this is that they can leave you very heavily exposed to the US, which is the world’s biggest stock market, and many would argue is over-valued.

On the flipside, the advantage probably doesn’t need spelling out in light of the figures above.

However, even if you do think that the US market is too pricey and would prefer not to back it quite so heavily, you can either choose a global fund that holds less in America, or add a couple of other funds and trusts that invest elsewhere to rein your exposure in.

Investors in some of the big names in the world of global funds and investment trusts are likely to have been pleased with their returns over the past couple of months.

To varying degrees, dependent on their individual strategy and holdings, the likes of Fundsmith Equity, Lindsell Train Global Equity, Scottish Mortgage, Baillie Gifford Global Discovery, have reaped handsome profits from the rebound.

Some of the money I invested in my Sipp went into the up-and-coming Blue Whale Growth Fund in the middle of April and is up a bumper 20 per cent.

But before you sign up to one of those big global fund or trust beasts, you should also ask yourself if a cheap and simple tracker can do the job equally well.

Funds can be divided into two categories active and passive. The former has a manager who attempts to pick winning shares and beat the market, whereas the latter will simply replicate a given stock market or index’s performance.

It’s easy to think that investing with a manager who can beat the market is the obvious choice, but there’s an important caveat: often those fund managers fall short.

By trying to pick winners they risk getting things wrong and falling behind the market instead of racing ahead of it.

The way to avoid this trap is to choose a passive or tracker fund. At their simplest level these follow a major stock market index or basket of investments and aim to track its performance as closely as possible.

A tracker won’t beat the market, but nor will a decent one fall substantially behind.

The two things to watch out for with passive funds are tracking error and costs. Tracking error is a guide to how closely that fund manages to follow its benchmark index, while high costs will eat into your returns.

A good building block is a global tracker, for example HSBC’s FTSE All-World Index fund, or Fidelity’s Index World fund. These let you invest around the world at a knockdown price.

It is also possible to buy a tracker fund that builds an entire balanced portfolio in one place and invests in shares and bonds around the world, the most popular is Vanguard’s LifeStrategy range, which holds varying degrees of these assets depending on how much risk you would like to take.

Active funds or trusts that do similar are also available, ranging from defensive trusts such as Ruffer and Personal Assets, to more growth-oriented options such as Baillie Gifford’s Managed Fund.

Whether you are an experienced or novice investor the gains markets have seen in the past couple of months offer some breathing space to check whether your portfolio is right for you.

For a crash course in building a balanced portfolio, read our guide to asset allocation here, and whatever you opt to do, remember there’s every chance the market may take another tumble.

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.