We are now through the first 4 months of the COVID-19 Pandemic and life is very strange indeed.
Although the number of infections are down in the UK significantly, there are still pockets of infections and life is still far from normal. In my 32 years of advising clients, family and friends, I have never seen something of this proportion that affects so many people and businesses from all walks of life.
Although this uncertainty has affected us all in so many ways, we feel that it is important at times such as these that we continue to keep you updated.
The Stock Markets
The second quarter to 30th June 2020 has witnessed strong equity returns, bouncing back, as expected, from the initial panic and mass market sell-offs in quarter one. Although markets have performed strongly over the last 3 months, whilst the COVID-19 pandemic continues, caution still prevails particularly if further spikes in the virus occur.
In the UK, the FTSE100 Index rose by 11.3% during the past 3 months to 30th June 2020. This was in fact one of the poorer performing major indices as the UK has been hit hard by the COVID-19 crisis, with high infection and death rates, which are slowing the easing of lockdowns.
The economic uncertainty in the UK has been compounded by the Organisation for Economic Co-operation and Development ('OECD') forecasting an 11.5% decline in GDP in 2020, followed by a 9% rebound in 2021, but also despite not hitting the daily headlines, the Brexit negotiations are still to be concluded! We expect a deal to be reached but the potential for a no-deal exit still exists and therefore volatility is expected to continue.
Negative yields now cover all UK Gilts (loans to the government) with maturities up to 7 years. This is incredible and means that investors are willing to pay the government to take their money! This is largely due to gilts being a ‘safe haven’, however, it does point to how difficult it will be to achieve income in the future.
This is why we still believe that our proposition is strong for the long term.
As previously reported, the US fiscal and monetary response to the crisis has been extraordinary, with the Federal Reserve cutting interest rates to zero, announcing unlimited quantitative easing and being committed to buying investment grade and high yield corporate bonds.
With these unprecedented stimulus measures and expectant low inflation levels, equity returns are predicted to be positive, having already posted returns in the US of 21.8% over the last 3 months. However, the main concern is the relatively high COVID-19 infection rate with the number of new cases seeming to continue to rise.
The US have the Presidential election in November, with the race between Trump and Biden expected to be close. A sustained recovery in the US stock market will be Trump’s best aid in re-election to the White House.
Concerning our funds we were delighted to learn that Adrian Frost, lead manager of Artemis Income Fund has just been awarded Investment Week award for outstanding investment manager over 25 years. This fund is one of our core holdings and is still performing very well, despite the volatility.
We have experienced a great deal of difficulty following the March and June quarter rent dates, with a multitude of tenants across all sectors failing to pay their rent due. In most instances the issues faced by tenants that have not paid are genuine and it remains our firm belief that where possible we are far better working with an existing tenant to help them through these extreme times than creating a vacant unit, with all the associated costs this produces.
As a consequence of COVID-19 and the impact this has had upon businesses, a number of property fund managers are reporting less than 20% of rents due have been received for this period, which is unprecedented. Although in comparison, we have achieved a very strong 68% of rents for March & June across all our syndicates, we are by no means complacent and continue to work with tenants to improve this number. Where appropriate, we are also negotiating concession packages on our members’ behalf that we feel are equitable for both parties and once these have been negotiated to a level we feel to be fair, we are approaching the syndicates on a case by case basis to put such proposals to a vote.
Moving forwards, we may see some tenants continue to struggle with their short-term obligations, so as the economic situation unfolds working together for the longer term and therefore working with tenants to achieve good outcomes for both parties will probably be the best way forward.
It is also possible that some tenants will need to have permanent holidays for the payments that they have missed, just to allow them to get back on their feet. This won’t be dissimilar to stock market based funds, where over the same period investors are expecting to receive about 60% of their normal dividends from the shares that they hold, because of the effect COVID-19 has had on their profits.
Whatever decisions have to be made, some will be easy and some not so easy, but we will want to ensure that your investments not only stay strong in the short to medium term, but also that you benefit in the longer term by the decisions that are made today.
We also strongly believe that a spread across our syndicates is a great way to hold good assets in strong locations, as they will continue to provide a good spread of investments and a good spread of income for many years to come and we are still actively looking for new opportunities should they arise at the right price.
You may know that in the past, every 6 months we have independently valued our commercial properties, so that you will always have an up to date figure for your assets. As a result of the pandemic, this is virtually impossible, however, the board feel that we need to reflect the position in values and the most straightforward way to apply this principle was to use a property index figure across all commercial properties and all sectors in the country. The index used is the CBRE commercial property index which since the crisis started is showing a 6.3% reduction in values.
Therefore, your property values whether in LLP holdings or in your Options UK (Carey) SIPP will reflect this reduction moving forwards on your portal or your portfolio valuations from Lewis’.
Concerning our staff, we are now working towards a plan that will not only ensure good service for you, but strong continuity for the company and all our stakeholders for the long term. If you need any help or advice in the meantime we are available and open for business, so please don't hesitate to get in touch.
We have had a tremendous response to our new Apple iOS App, with the servers just about taking the strain of launch day and now many clients are benefiting from its technology. If you have not yet downloaded this, you can read our instructions on how to download it HERE. We’re still working on an android version, but for non-apple users the new portal can still be accessed from your preferred internet browser. Just let us know if you need access details to be provided or have any problems with it.
It just leaves me to wish you the best of health and rest assured we are here to help wherever we can.