Refining the growth strategy by Corliss Online Group Financial magazine

Outside the portfolios' 'Themes' and 'Commercial property' sectors, regular readers will know that the strategy guiding both portfolios since their inception five years ago has been to 'Go high, go deep and go east'. The emphasis has been on higher-yielding blue-chips and bonds, smaller companies and the Far East (including Japan from the end of 2012).

This has served both portfolios well. However, the time has come to modestly refine the strategy for the Growth portfolio given market conditions and its freedom from an income constraint.

Go high, go deep

Governments' vested interest in stoking a modest rise in inflation to help erode high debt piles has resulted in interest rates remaining low for an extended period of time. The post-war period saw a similar exercise and reminds us of both the benefits and potential drawbacks of such a policy. The job is not yet done. Debt remains stubbornly high. Despite all the talk of austerity and deficit reduction, this government has only managed to reduce the rate at which we are adding to our National Debt by one third. Other governments are in a similar, if not worse, position.

One strand of the investment strategy guiding both portfolios has therefore been to focus on higher yielding corporate bonds and blue-chip equities. The bonds because they are better insulated from modest rises in inflation, and because their risk profile will gradually improve as the economy moves forward and solvency concerns recede. The equities because their yield is attractive relative to other asset classes and because strong corporate balance sheets have been able to sustain dividend increases. Both strands of the strategy remain valid for investors seeking income.

Another catalyst for the market’s continued rerating is the government’s launch of Isa-style accounts aimed at encouraging households out of some of their $15tr of savings and into the stock market – a process which should be made easier as inflation takes hold. Given the market is under-owned, with only around 5 per cent of households’ assets invested, a modest shift could have huge ramifications. The market capitalization of the 50 largest companies is worth just 12 per cent of total household savings.

The fact that many investors still dislike Japan further adds to the market’s attraction. But, again, the focus on Japan within the 'Go east' element of the Growth portfolio's strategy will not be replicated to the same extent within the Income portfolio because of yield constraints - Asia outside Japan is still where the better yields are to be found. Browse this site

Portfolio changes

Accordingly, a number of changes were made to the Growth portfolio in January. Perpetual Income and Growth Investment Trust (PLI), Schroder Oriental Income Fund (SOI) and Aberdeen Asian Smaller Companies Investment Trust (AAS) were sold whilst standing at a small premium, at par and at a 5 per cent discount respectively. All are excellent trusts – indeed, PLI remains in the Income portfolio.

In their place, I have introduced JPMorgan Japanese Investment Trust (JFJ) while standing at a 10 per cent discount. The performance has picked up significantly since Nicholas Weindling took over in the autumn of 2010. Speaking with Nicholas, I suggest this pick-up has perhaps been helped by him and his team being based in Tokyo, which is not as common as you may think.

To compensate for the loss of SOI and AAS, I have bought Scottish Oriental Smaller Companies Trust (SST) while also standing on a 10 per cent discount – the new weighting being a tad higher than the 2.5 per cent which AAS had dropped to.

Outside the Far East, I have added to both Henderson Smaller Companies Investment Trust (HSL) and International Biotechnology Trust (IBT) while standing at discounts of 12 and 15 per cent, respectively. A conversation with Neil Hermon, HSL's manager, confirmed that around three quarters of the portfolio is in mid-cap stocks - a reminder that trust names can sometimes inadvertently be opaque. 

Corliss Online Group Financial magazine on Top 10 tips for female entrepreneurs

A study last year by the department for business revealed that – finally – more women are taking the plunge and launching their own businesses.

The number is still pretty low – just nineteen per cent of SMEs are female-led, according to the study, but, more encouragingly, a quarter of new businesses – two to three years old – were formed by women.

I was fortunate enough to speak at an all-female business event held by the New Entrepreneurs Foundation last week to drive more women to apply for its new programme, which got me really thinking about how we can encourage more women to choose the enterprise path, like I did.

Something Anne Marie Morris MP mentioned in her speech really brought it home – women-led businesses contribute £70 billion to the UK economy. That is surely too significant a figure to ignore?!

So, here’s my advice to make sure women get in the game and level the playing field:

1. Stop thinking of ‘female’ as a disadvantage.

You’re a woman... so what?! I once heard a young female entrepreneur ask, “I’m pitching to investors and worried that they’ll look at me and think, ‘What if she gets engaged and has babies?’”

2. Choose your girlfriends carefully.

The importance of carefully choosing a guy who will emotionally support both you and your career is obvious. What’s equally crucial is befriending women who reflect what you wish to become.

3. Know your heroes.

To make your ideal scenario happen, you need to know what it looks like. I really look up to Katie Couric, Sheryl Sandberg, and Brene Brown – namely, the way that they’ve had careers and families without making it an ‘issue’ – they’ve just gotten on with it. Mindy Kaling and Connie Britton also inspire me to value the freedom and beauty of being single.

4. Focus on what you can control.

You’re going to come up against people who want you to feel like you don’t deserve something because you’re a woman. Let these people make you, not break you – those who try to bring you down often act that way because they feel like you are above them.

5. Don't judge other women.

Some women choose to focus on career. Some women choose to focus on family. Some women choose both. I don’t feel like it’s my right to comment on any other woman’s choices because I know that there’s always more to her story than what I can see.

6. Really get to know yourself.

Women are often so focused on those around them instead of putting themselves first. Whether it’s through journaling, yoga, therapy, or a retreat – take time out to be with the only person you’re ever going to really know. Getting to know your own mind can keep you grounded when things are rocky.

7. Nurture your male friendships

Male-female friendships don’t have to be weird unless somebody makes it weird. I have a lot of male friends and I value those friendships just as much as I value my female ones.

8. Ignore your mother’s nagging when it comes to your love life

My mother used to be on my back about the ‘lack of effort’ that I apparently put into my love life until I told her what I’ve always believed: it happens when it happens. As you get older and get to know more guys, you learn that truly loving relationships are places where you go to give, not places where you go to take. It can take time to find (and to become ready) for that. Focus on building your business and follow your own timeline, not one projected by magazines and popular culture.

9. Celebrate being a woman

The worlds of femininity and masculinity are colliding and I feel like millennial females are caught in this collective identity crisis. On the one hand, it’s exciting to be a woman in an era where we can vote, become CEO, or run for President.

10. Always have faith in yourself

I’ve met a lot of female entrepreneurs who have faith in their abilities but don’t have faith their worthiness of love, affection, true friendship. When it comes to finding investors or customers, or a boyfriend or a life partner, or great girlfriends… it starts with being able to accept yourself wholeheartedly.

Corliss Online Group Financial magazine 8 Financial Planning Tips

If you're like most Americans, you probably didn't make a new year's resolution to get started with long-term financial planning.

A staggering 84 percent of respondents to a New Year's Resolution Survey from Allianz Life Insurance said that financial planning was not among their 2014 resolutions at all—the highest percentage ever to reveal that in the survey's history.

What held them back? Well, 30 percent said they don't believe they make enough money to "worry" about financial planning. That's bizarre. Shouldn't having less money increase your need to manage what you have effectively?

Regardless of your situation, I hope you'll engage in the planning process this year—and the sooner you get started, the better.

The advice my firm is giving our clients in 2014 features many themes often repeated over our 25-year history, along with some new information reflecting what's happening now. Here are eight key elements:

·         Maintain a well-diversified investment portfolio. Although the economy is improving, the stock market is at an all-time high and corporate profits are setting records, much weakness and uncertainty remain. Therefore, this is no time to make big bets. For that reason, we continue to advocate extensive global diversification. Stocks should include U.S. and foreign companies of all sorts: large-cap, mid-cap and small-cap; growth and value; and emerging markets. Your portfolio should also include real estate (diversified by type and geography) and bonds (government and corporate, U.S. and foreign—more on duration later), as well as natural resources, including precious metals, oil and gas. One of the most cost-effective ways to accomplish this is through exchange traded funds

·         Rebalance the portfolio as needed. Most people never rebalance their portfolios, which can cause their risks to rise and profits to fall. And many who do rebalance do so on a calendar basis. We eschew that method as inefficient—who's to say you need to issue buys/sells/trades just because it's June 30? That's why we rebalance our clients' accounts on a percentage basis. When a portfolio drifts beyond preset limits, we rebalance—as often or as seldom as necessary. This requires a daily review of each portfolio, a chore our clients happily delegate to us. But you can do it, too, if you are willing to take the time.

·         Avoid long-term bonds. The strengthening economy will eventually cause the Federal Reserve to raise interest rates—and when that happens, bond prices will fall. For that reason, we are placing almost all of our clients' bond positions in short- and intermediate-duration bond funds. This will help reduce interest-rate risk while maintaining diversification.

·         Contribute the maximum to your retirement plan at work. If you can't put in the full amount now, increase your contribution each year until you can. And commit to placing half of future pay raises in the plan.

·         Avoid Initial Public Offerings. IPOs got a lot of attention last year, largely thanks to Twitter, but it seems Facebook's IPO has been forgotten. Instead of trying to grab the latest hot stock, remember that your diversified ETFs probably will obtain the stock for you—meaning, you don't have to try to succeed by "getting rich quick."

·         Review your estate plan. Look at your will, trust documents, powers of attorney and beneficiaries on your retirement accounts, annuities and life insurance policies. People may have died or been born since you signed the documents, or you might not still feel as you once did about heirs. Reading the documents will give you the opportunity to update them.

·         Save for college with 529 plans. They let your money grow tax-free and are flexible enough to cover all expenses—including tuition, room and board and books—at any accredited college, public or private, anywhere.

·         And here's what not to do. We do not recommend variable life insurance policies, nontraded real estate investment trusts, hedge funds, "alternative" funds, master limited partnerships investing in oil and gas, fixed or equity-indexed annuities, actively managed retail mutual funds, inverse funds, commodities trading, derivatives, short-selling, buying on margin, lottery tickets or viatical settlements (purchases of life insurance policies from the terminally ill).

If you don't have a comprehensive long-term financial plan for yourself and your family, get one from an independent, objective, fee-based financial planner. I can't think of a better new year's resolution.

Winners and losers in the new China by Corliss Online Group Financial magazine

“It will be very painful and even feel like cutting one’s wrist.” So predicted Li Keqiang, China’s premier, as he discussed the task ahead of him during his first press conference last March.

Not the most inviting prospect for investors looking to make a play on China. But they should certainly take heed of these words. Li is the man who, together with president Xi Jinping, must lead a reform programme regarded by analysts as the most fundamental in decades. It will affect almost every part of an economy worth $9.4tn (Britain’s annual output, for comparison, is $2.4tn).

So what are these reforms? And why does China’s new leader think that their implementation will be so painful? There are three key areas which investors should note.

The shrinking state

The first area of reform is reducing the role of the state in the Chinese economy. There is a broad consensus among analysts – and, increasingly, among Chinese policy makers – that the government’s influence over key parts of the economy is threatening the health of the economic system.

Nowhere is this truer than in the role the government plays in dictating key prices in the economy. By letting the state rather than the market set the price of key resources, distortions have developed which now threaten economic growth.

The cost of borrowing, for example, has been kept artificially low by the government. Real lending rates since 2004 have averaged just 2.9 per cent, and at times have even fallen below zero. The consequences have been dire. Cheap money has encouraged a splurge of capital expenditure on fixed assets and infrastructure, which has led to high levels of overcapacity in many parts of the economy.

Prices of everyday essentials such as water, oil, natural gas, electricity and freight have also been kept artificially low to make Chinese manufactured goods competitive abroad and to keep a lid on domestic inflation. But such low input costs have encouraged rampant overproduction, with devastating consequences for the environment. Industrial air pollution is now at dangerously high levels in many of China’s urban areas.

This level of state intervention is increasingly regarded as unsustainable. But reducing it will not be easy; it was the curbing of the state’s reach that Mr Li likened to “cutting one’s wrist”. He was referring to a Chinese legend, in which a warrior who had been bitten by a snake cut off his hand to save the rest of his body.

Managers of those companies that have benefited from artificially cheap credit and energy will almost certainly feel like cutting their own wrists. As the market has a bigger role in setting prices – and the state a smaller one – input costs will inevitably rise. Companies in the industrial and manufacturing sectors – many still state-owned and woefully inefficient – will be particularly hard hit.

Companies will also face higher financing costs if lending rates are liberalised. While the official one-year benchmark rate for loans is currently 6 per cent, annual lending rates in the liberalised, unofficial, shadow banking system are generally above 10 per cent. State-owned giants which have enjoyed preferential access to cheap loans from unquestioning banks will struggle to access finance on more normal commercial terms.

Corliss Online Group Financial magazine on Travel Talk

I’m grumpy about flying these days. Part of it is just the hassle of the process, but now there’s even more. Bud and I had a decades-long strategy of managing our US Airways frequent flier status to maximize free upgrades on domestic and European routes, as well as to secure virtually free first-class seats on flights to Oceania, Southeast Asia and Africa. Trust me, there’s nothing like being pampered in first class on Singapore Air to take the sting out of flying! Sadly, airline rewards and loyalty benefits are going the way of free meals – or free anything – in the air.

The Old: Back in the day, you earned elite status (and the accompanying benefits/privileges) by actually flying the miles. Most promotions (say, double “qualifying” miles for status on certain routes) targeted existing members to encourage loyalty. This kept the rarified air of first-class upgrades cozy. Special check-in lines, private lounges with free cocktails and food – like that. Upgrades were doled out according to rigid rules – highest status first. Then came along airline affinity credit cards that allowed anyone holding them (imagine!) to use the first class check-in process – no matter if you had a lowly economy ticket. Promos of all kinds expanded until there were lots of ways to get upgrades and privileges – resulting in more competition among flyers and less actual revenue generated from the premium seats. Hmmm, thought the airlines . . . what to do?

The New: 2014 will bring changes galore – many of them retooling loyalty programs to extract more revenue. For one thing, the merger between American and US Airways is a done deal. Those of us who spent 25-plus years being loyal to US Airways (and the Star Alliance network) will be acclimating to American and One World. For starters, American allows passengers to bid on seat upgrades – more revenue for them, less availability for elite members.

For another, there are fewer international routes on One World than on Star Alliance. So . . . fewer destinations, fewer seats. Some airlines (Delta and United) will require minimum spending of $2,500 to more than $10,000 in addition to miles flown or earned to achieve status. This while many airlines are reducing the number of premium seats available – though they are actually installing better seats.

What To Do: So should we bother with elite status any more? George Hobica, founder of airfarewatchdog.com, wrote on the subject recently for USA Today – and says not so much. Better to scan the internet and watch for deals on premium seats, especially last-minute upgrades – or upgrades offered as you check in. Bud and I passed up $50 upgrades to premium economy seats on a Virgin Atlantic flight to London in November – something we will never, ever do again! For specific tips, try farecompare.com in addition to airfare watchdog.com, frequentflier.com or try a free trial at the pricey (but maybe worth it) firstclassflyer.com. Visit site

Corliss Online Group Financial magazine on how to Get out of credit card debt faster

IT'S time to come clean about our dirty credit card habits and how we can avoid them eroding our wealth.

While we've all been slowly reducing our outstanding credit card balances, with $34 billion still owing, they remain the scourge of most families.

It's fair to say credit cards are the most potent weapon of mass financial destruction since the loan shark. Their convenience and flexibility means it's so easy for them to get out of hand and lead to serious financial distress.

We need to be vigilant in ensuring our credit cards work for us and don't destroy our finances. To avoid getting into trouble in the first place, or get back in control of an existing debt, here are our five golden rules for using credit cards.

1. Pay off the most expensive debt first

This is a basic part of financial management, but still so many people put their money in different piles without realizing it's costing them in interest. When you have a high interest debt, such as an big credit card balance, paying it off must be your priority.

If that pile of expensive debt looks like it'll take a while to pay off, consider moving the balance on to your lowest interest rate loan. If this transfer carries a fee, you can use an online calculator to do some rough sums to make sure the interest savings are worthwhile.

2. Repay more than the minimum amount

To reduce credit card debt you have to make more than the minimum repayment.

The minimum just means you avoid late charges and can continue using the card. It might not even cover the interest accrued each month, and that's trouble.

Compound interest (interest paid on interest) is a powerful thing when you're saving, and when it's going against you it's just as powerful in blowing out your debts. If you're really struggling to make repayments, set up a direct debit so that each pay cycle the credit card gets paid off first.

3. Get the best deal

Don't get sucked into rewards programs or account keeping fees if you're not benefiting from them. A common misconception is that fees on financial products mean a better service or features, but that's not right. There are plenty of fee-free cards that offer similar credit limits, flexibility and terms.

4. Be aware of interest-free periods

No doubt you've seen credit cards offering interest-free periods for new purchases or balance transfers, but do you know what they mean and how to take advantage of them?

Usually the interest-free period starts at the date of your last statement, not when you make a new purchase, so it's important to know your billing cycle to avoid paying interest.

Also, in most cases you only get the purchases interest-free if you pay off your entire credit card balance by the due date each month.

5. If you can't afford it, don't get it

For a lot of plastic-happy shoppers, the debt spiral ends in the pretty simple realisation that they can't afford to have a credit card. So if you lack the financial capacity or self-control to service a high interest debt, cut up the credit card before it becomes a problem and ask the bank to stop offering extensions. With debit cards able to perform a lot of the functions that were previously only available to credit cards, you can get by all right with the savings based alternative.

By sticking to these five rules when swiping your credit card, those soft drinks and comfortable shoes won't end up costing much more than the marked price.