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Slide 1 Ingenious Asset Managementwww.ingeniousmedia.co.uk Fixed Interest as an Asset Class and What Fixed Interest to hold in a Charity Portfolio Philip.

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Presentation on theme: "Slide 1 Ingenious Asset Managementwww.ingeniousmedia.co.uk Fixed Interest as an Asset Class and What Fixed Interest to hold in a Charity Portfolio Philip."— Presentation transcript:

1 Slide 1 Ingenious Asset Managementwww.ingeniousmedia.co.uk Fixed Interest as an Asset Class and What Fixed Interest to hold in a Charity Portfolio Philip Todd 14th May 2013

2 Slide 2 Ingenious Asset Managementwww.ingeniousmedia.co.uk Asset Class Returns 10 Years to End Dec Jan 13 to 9 May 13 Period Return Cumulative Return Annualised Return Cash (Base Rate)33.6%2.9%0.2% FTSE Gilts All Stocks76.7%5.9%0.8% Index-Linked Gilts All Stocks103.9%7.4%7.7% Merrill Lynch Corporate Bond Index 80.0%6.1%5.0% IPD UK All Property75.9%5.8%1.7%* FTSE All-Share131.7%8.8%13.9% *Estimate Source: Morningstar Direct

3 Slide 3 Ingenious Asset Managementwww.ingeniousmedia.co.uk Bonds Expensive or Cheap?

4 Slide 4 Ingenious Asset Managementwww.ingeniousmedia.co.uk Source: Bloomberg *Source: The Economist UK & US Government Bond Yield US bond yields last at these levels in 1947 – returned -1.6% PA next 30 years.*

5 Slide 5 Ingenious Asset Managementwww.ingeniousmedia.co.uk Bond Yields Interest Yield – the annual gross income expressed as a % of the current value Cash:£100,000; interest rate 0.5%; annual income £500; interest yield 0.5% Shares:£100,000 (100,000 shares at 100p); dividend rate per share 3.32p; annual income £3,320; interest yield 3.32% Gilt:£100,000 worth (£83,319 Treasury 4% 2022 priced at £ = £100,000) -Coupon is 4% -Annual income is £3, Interest yield is 3.33%

6 Slide 6 Ingenious Asset Managementwww.ingeniousmedia.co.uk Bond Yields Treasury 4% 07/03/2022 gilt (interest yield 3.33%) Current price is £ But at 07/03/2022 that £ falls to £100 For your £83,319 nominal of this Treasury 4% 07/03/2022 you will get £83,319 – a loss from now of £16,681 However, you will receive £1, every 6 months up to and including 07/2022, a total of £29, Gross Redemption Yield is 1.57% (better than cash?; less than inflation?) Gross Redemption Yield – is a measure of a bonds future return if it is held to maturity. It is expressed as a % and takes into account the time value of money, accrued interest and any capital gain or loss on redemption. It is expressed as an annual % return.

7 Slide 7 Ingenious Asset Managementwww.ingeniousmedia.co.uk Bond Yields PriceInterest Yield Gross Redemption Yield 9 Year Gilt TR 4% 2022£ %1.57% 4 Year Gilt£ %0.26% 25 Year Gilt£ %2.92% Treasury 4.25% 2027£ %2.31% Index-Linked Gilt 1.25% 2027 £ %-0.78%* M&G Corporate Bond Fund p3.22%2.26% *Prospective Real Redemption rate on projected inflation of 3% Source: Morningstar Direct

8 Slide 8 Ingenious Asset Managementwww.ingeniousmedia.co.uk What Fixed Interest to hold in a Charity Portfolio?

9 Slide 9 Ingenious Asset Managementwww.ingeniousmedia.co.uk You need to have a view of the world. In the UK Economic Backdrop Inflation/Deflation - Central Bank finds inflation helpful. The alternatives are growth (proving problematic) or default (unattractive) Interest Rate Direction - the next interest rate move is likely to be a rise Currency - Sterling has not shown to be a good store of value (and is unlikely to be for the foreseeable future).

10 Slide 10 Ingenious Asset Managementwww.ingeniousmedia.co.uk Source – Office of National Statistics, Ingenious Asset Management UK RPI post the Second World War

11 Slide 11 Ingenious Asset Managementwww.ingeniousmedia.co.uk Financial Repression – Inflation Source: Office of National Statistics Grow Default Debase

12 Slide 12 Ingenious Asset Managementwww.ingeniousmedia.co.uk Gold versus Sterling Number of Gold Troy Ounces per £1000 Source: Thompson Reuters Datastream

13 Slide 13 Ingenious Asset Managementwww.ingeniousmedia.co.uk Norwegian Net Debt Norway, General Government Net Debt % of GDP Graph Source: Thompson Reuters Datastream, The Economist (*6 Year),

14 Slide 14 Ingenious Asset Managementwww.ingeniousmedia.co.uk Fixed Interest Exposure in a Charity Portfolio EIB NOK (Norwegian Kroner) 4.25% 2017 AAA rated Supranational Bond M&G UK Inflation-Linked Corporate Bond Fund Exposure to index-linked UK Corporate issues – individual issues can be illiquid PIMCO Global Real Return Fund Exposure to the equivalent of UK index-linked gilts around the world with underweight/overweight views on geographic and duration positioning.

15 Slide 15 Ingenious Asset Managementwww.ingeniousmedia.co.uk Important Information This presentation relates to the various services (the Services) offered by Ingenious Asset Management Limited (Ingenious Asset Management) and is issued by Ingenious Asset Management, which is authorised and regulated in the UK by the Financial Conduct Authority under the Financial Services and Markets Act 2000 (FSMA). Nothing in this presentation constitutes investment, tax, legal or other advice by Ingenious Asset Management. If you have any doubts as to the content of this presentation and/or any action you should take, you are strongly recommended to seek independent financial advice from an independent financial adviser authorised under the FSMA with the requisite knowledge of the Services mentioned. Decisions to invest should be made on the basis of the relevant Terms and Conditions which are available from Ingenious Asset Management, and on the basis of any advice you may choose to receive from your independent financial advisor. No representation is made or warranty given as to the accuracy, completeness or achievability of any projections, views, statements or forecasts, which are illustrative. The projections, views, statements and forecasts herein are based upon various assumptions and estimates which involve elements of subjective judgment and analysis and which are subject to uncertainties and contingencies; actual results could differ materially from those set forth in such projections, views, statements and forecasts. Past performance is not a guide to future performance and may not be repeated. You may not get back the full amount you invest. This document may not be copied or communicated to any other person without the prior written consent of Ingenious Asset Management. Telephone calls may be recorded.


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