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London remains main target for foreign investment

London continued to attract more foreign direct investment than any other UK city last year, prompting calls for a wider distribution of funds across the country.

The capital attracted 73 per cent of the total 624 projects secured in 2018, according to research by EY and the Centre for Towns.

The level of investment into the UK’s 12 largest cities has increased from 31 per cent in 1997 to 59 per cent in 2007, with London dominating the list.

However, Edinburgh, Leeds, Manchester and Newcastle upon Tyne more than doubling the number of FDI projects in the ten-year period.

The called for more investment in the UK’s towns and rural communities after research found that manufacturing FDI projects in former industrial and university towns fell by 50 per cent last year.

Over the last 20 years, large towns – with a population of more than 75,000 people – have seen their share fall from 26 per cent to 17 per cent.

EY chief economist Mark Gregory said: “The towns and conurbations on the periphery of the UK’s core cities are facing unprecedented economic challenges, but what is particularly worrying is how deep the economic disparity between cities, towns and smaller communities has become over the last 12 months.

“Core cities have been far more successful in attracting FDI while levels of investment in other locations has at best flatlined over the past 20 years.

“UK economic policy has tended to be based around core cities and this is likely to have exacerbated the geographic disparities in attracting FDI. With Brexit being one of a range of challenges facing the UK economy it is vital that a new approach to FDI policy, centred on geography, is developed as a priority.”

In total, 34 per cent of foreign investors said the availability of transport and technological infrastructure was an important factor when choosing a location to invest, while 32 per cent said the local skills base was a key criteria.

By Jessica Clark

Source: City AM

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How better understanding risk can boost your investments

The ‘right type of risk’ can transform people’s finances in a positive way, according to a new study.

Few investors like taking risks with their money. The chance of losing your hard-earned cash is never an appealing prospect.

However, the harsh reality is you need to embrace some risk to stand any prospect of making decent returns with interest rates being so low.

When you consider inflation is around 3% at a time when the Bank of England’s Monetary Policy Committee has set the base rate at just 0.5%, the imbalance is clear.

The right type of risk can also transform people’s lives in a positive way, according to a new study from Investec Click & Invest.

The survey found almost half of investors could put more aside for a rainy day, 38% had made home improvements, while a third were able to buy a house earlier.

It has also positively helped many of them with their financial situations, with 28% able to retire earlier and a quarter paying off long-term debts more quickly.

Jane Warren, chief executive officer at Investec Click & Invest, agreed risk-taking could be intimidating but insisted the study illustrated the potential benefits.

“This is especially (the case) when it comes to achieving some of those key goals in life such as getting on the housing ladder and making provisions for the future,” she said.

The key, she believes, is empowering people to make these decisions and begin improving their financial futures.

“We believe more needs to be done to educate potential investors about the benefits of investing so that it doesn’t always feel like a giant leap and is an educated decision,” she said.

It’s another point highlighted by the Investec study, which revealed confidence, knowledge and experience were the key barriers to taking risks.

Of those that hadn’t invested, around a third would do so if they were more knowledgeable and 27% if they better understood the risks involved.

Meanwhile, more than half (54%) simply believe that their savings are more secure in a savings account rather than investing it in the stock market.

However, there is also the prospect of risk regret. When reviewing their life decisions, almost a third regretted taking too few risks, according to the survey.

More than one in 10 people (12%) regret not investing in the stock market at all or not doing it earlier – and this figure rises to 15% of 18-34-year olds.

Delaying retirement savings is also a key regret, with almost a fifth of 18- to 34-year-olds (18%) wishing they had started a pension earlier, while 18% of women have the same regret.

Embrace risk, but find a balance

While humans are naturally cautious, they are also curious and only grow through taking risks, according to psychologist Corinne Sweet.

While the more introverted tend to be risk-averse, the more extroverted will generally be more adventurous.

“Finding a balance, and branching out, even taking risks, is what keeps us alive and moving forward as a species,” she said.

The key, of course, is taking enough risk to improve your chances of hitting financial goals, while at the same time not gambling everything you have saved on the stock market.

Choosing the right investments depends on your financial goals, such as putting your children through university or helping them get on to the property ladder.

It will also depend on how quickly your money is needed. For example, if you have a decade to earn a set amount you may be able to take more risk with your money.

Of course, there are ways to help mitigate the risk being taken. One suggestion is to invest in stages rather than as a lump sum.

Although you can’t eliminate risk from your investments – and nor should you because it is needed for the pursuit of decent longer-term gains – you can manage it better.

The first way is through having exposure to a broad range of asset classes. This is known as diversification and involves investing in a variety of asset classes.

The idea behind diversification is that any losses suffered in one asset class should be balanced out by gains made elsewhere.

Investing at different times will also help reduce your timing risk and enable you to take advantage of any stock market falls.

Another option – which takes this idea a step further – is investing regular amounts each month in a process known as pound cost averaging.

Investors pay a set monthly figure to buy units of a fund – at whatever price they are available.

Therefore, if you regularly invest £200 into the fund and have been buying units at £8 each, when they fall down to £6 you will get more units for your money.

Source: Love Money

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Communities Secretary calls for borrowing to invest in building new homes

A senior Cabinet minister has said the Government should borrow money to invest in hundreds of thousands of new homes in what appears to be a significant shift in Conservative thinking.

Communities Secretary Sajid Javid said ministers should take advantage of record low interest rates to deal with the housing crisis, which is “the biggest barrier to social progress in our country today”.

Asked if Chancellor Philip Hammond was on board with the idea a month away from his Budget, Mr Javid told BBC One’s Andrew Marr Show: “Let’s wait and see what happens in the Budget”.

But his call to borrow more cash to pay for spending on housing and other infrastructure appears to echo Labour’s own “fiscal credibility rule”, which states that the government should not borrow for day-to-day spending but be prepared use it to fund long-term investment.

Asked whether there would be a new housing fund to build homes, Mr Javid said: “We are looking at new investments and there will be announcements.

“I’m sure at the Budget, we’ll be covering housing but what I want to do is make sure that we’re using everything we have available to deal with this housing crisis.

Communities Secretary Sajid Javid
Communities Secretary Sajid Javid (Stefan Rousseau/PA)

“And where that means, so for example, that we can sensibly – you borrow more to invest in the infrastructure that leads to more housing – take advantage of some of the record low interest rates that we have, I think we should absolutely be considering that.”

He added: “I would make a distinction between the deficit which needs to come down and that’s vitally important for our economic credibility and we’ve seen some excellent progress, some very good news on that just this week.

“But investing for the future, taking advantage of record low interest rates, can be the right thing if done sensibly and that can help not just with the housing itself but one of the big issues is infrastructure investment that is needed alongside the housing.”

Mr Javid also suggested the Government would not relax protections for the green belt.

new homes

“I don’t believe that we need to focus on the green belt here, there is lots of brownfield land, and brownfield first has been a policy of ours for a while,” he said.

“There is a lot more that can be done, density is a big issue – if you look at the density of London for example, it won’t surprise your viewers to learn that London has some of the highest levels of demand in the country, the density in London is a lot lower than many other cities, Paris, Berlin, compared to most cities around Europe, so that’s one area where you can expand more.”

At the Conservative Party conference this month, Theresa May pledged to “dedicate” her premiership to fixing Britain’s housing crisis as she announced an extra £2 billion for affordable housing.

An extra 25,000 social homes could be built under the plans outlined by the Prime Minister but her promise was overshadowed by her mishap-strewn conference speech and subsequent Tory infighting, and the party remains under pressure to do more.

Environment Secretary Michael Gove appeared to back Mr Javid’s suggestions, tweeting that he was “v impressive on #Marr”.

Shadow housing secretary John Healey said: “If hot air built homes, ministers would have fixed our housing crisis.

“Any promise of new investment is welcome, but the reality is spending on new affordable homes has been slashed since 2010 so new affordable house building is at a 24-year low.”


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Five ways to harvest sustainable UK income

Since the financial crisis, investors and savers have seen meagre yields from cash and gilts, with rates anchored at historic lows.

For investors accessing markets to extract additional income, it is more important than ever to navigate stretched valuations across many asset classes. Furthermore, investors must carefully consider the sustainability of income generated from equity and fixed interest investments.

Despite mounting doom and gloom over the UK economy, the outlook for dividends remains sound, recently buoyed by the rapid pound depreciation, which has benefitted overseas earners. Investors should remain wary of dividend concentration, but the UK will continue to be a strong and reliable long-term source of income.

Taking a long-term, value-driven approach, here are five income opportunities in equity and fixed interest markets:

Value opportunities in unrated gems

We have maintained a large exposure to unrated and subordinated debt, mostly in the form of preference shares and Permanent Interest Bearing Shares (PIBS). Just because these types of instruments don’t have a credit rating, does not make them low quality. There are plenty of companies which have taken the decision not to pay for a credit rating and are considered robust businesses – John Lewis a good example.

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Insurance company preference shares are a neglected and under-researched area of the market. It is permanent capital for these companies and can provide a rich seam of value and additional yield – for example Royal Sun Alliance, Aviva and General Accident.

Separating the casino from the utility in UK banks

We carried a large underweight to UK banks since the crisis. UK banks entered the financial crisis with very low capital ratios, found dubious ways of complying with Basel III requirements and were, by and large, an ethics-free zone. Furthermore, many banks continue to be encumbered with high-risk investment banking operations. When investing in banks, it is important to separate the casino from the utility.

A decade on, we have seen positive developments among some UK banks, in terms of restructuring and regulatory scrutiny. Following a period of close analysis, we recently took a position in Lloyds – our first domestic UK bank since the crisis. It is a relatively low-risk bank, with 95 per cent of its lending book exposed to the UK and a 25 per cent share of the UK’s current account market. Lloyds is also trading at a historic low – well under half of its pre-crisis share price.

Rock-solid insurance companies

Most of our financial exposure is in insurance, where solvency ratios have been rock solid.  While low interest rates are a drag on performance, we can expect this to turn into a tailwind when rates slowly lift. Strong names in this space include General Accident and Legal & General.

Strong real yields in commercial property

Commercial property also looks solid value. Since the crisis we have seen low levels of property development and vacancy levels remain close to record-low levels. Yields are a very robust 4.5-5 per cent, while rental growth remains positive driven by strong tenant demand. Property rents tend to keep pace with GDP growth over the long-term, so it can be argued this is a 4.5-5 per cent real yield. Picton Property and Londonmetric Property are great ways to gain exposure to this asset class.

Look to Asia’s growth engine

China looms large in the Asia region and for good reason – it is Asia’s growth engine. Every few years we hear a scare story about China – the currency devaluation being the latest – but its economy remains resilient.

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The service sector is faring well and consumer sentiment is strong. GDP growth of 6-8 per cent looks achievable to support a more balanced and transitioning economy. While the obvious cheapness has evaporated, Asia remains attractive on a relative global basis. We are currently invested in the region through HSBC, which earns most of its profits in Asia – as well as local companies such as dominant telecom China Mobile. Both yield more than 5 per cent.

Source: Money Observer