Cheltenham-based RBC Brewin Dolphin is one of the UK and Ireland’s leading wealth managers, tracing its roots back to 1762.
It offers award-winning, personalised wealth management services from bespoke, discretionary investment management to retirement planning and tax-efficient investing.
The team meets the financial needs of individuals, companies, charities, pension funds and trusts, and specialises in helping clients to protect and grow their wealth by creating investment portfolios that meet their ambitions and aspirations.
About the expert – Tom Barton investment manager at RBC Brewin Dolphin
Tom Barton has thoroughly enjoyed his eight years so far at RBC Brewin Dolphin and finds it motivating to work with members of the team who've worked there for more than 30 years.
He loves the long-term thinking of the team and focusing on clients’ needs. He also values working for a national firm, with more than 30 offices across the UK, Channel Islands and Republic of Ireland, but importantly with a strong local presence in Cheltenham.
2022 is over, looking back over the
year, how would you summarise it?
In a word, challenging - possibly the toughest of my career. We, as investors, have been faced with a glut of bad news in the form of persistently high inflation, aggressive global policy tightening, the continued fallout of the Russia-Ukraine war, weak consumer confidence and political disruptions. This has made for a very volatile ride.
Higher interest rates have challenged the basis for higher valuations of stocks, but what has made things even tougher has been the unidirectional nature of returns, in that stocks and bonds have both fallen. This is very unusual as bonds typically tend to provide diversification to portfolios and help when equity markets are less buoyant.
Looking ahead to 2023, what are your key predictions?
Global central banks look likely to continue with their aggressive rate hiking to try to cool inflation. And this means the risk of a global recession is high. We expect, however, that inflation will moderate as we move through the year and, assuming it does, central banks should stop raising rates, and recessions, where they occur, will likely be mild.
It’s also important to remember there is sometimes a disconnect between economies and markets. Whilst the worst for the global economy is likely still not over, the good news is that markets are forward looking, and therefore a fair amount of pain could already be reflected in the price of various investments. Bonds now look increasingly attractive and the broad-based sell-off in equity markets in 2022 has left some stocks with strong earnings potential trading on lower valuations.
There are several themes that could provide the catalyst for sentiment to improve in 2023. Firstly, any further relaxation to China’s zero-Covid policy would remove a distinct hurdle for China, but also for the global economy due to reduced supply chain disruption (which has contributed to rapidly rising goods inflation). Markets are also likely to react positively to any indication that Chinese authorities are prepared to refocus on growth and away from reform.
Secondly, signs that US inflation is moderating could be a forerunner of the much-feted Fed pivot, i.e. to a decrease in rates. If, and when this happens, one would expect to see a boost to equities.
Finally, any relief for European consumers, either by an unexpected end to the war or a comprehensive fiscal support package, would improve the region’s outlook.
For the risk averse, what are the best bets for 2023?
We believe a defensive positioning is likely to be beneficial for most investors, but particularly those who are risk adverse. Government bonds are likely to have a role to play, especially now that yields are more attractive.
Even if policymakers are forced to back down (i.e. interest rates plateau) due to the scale of the prospective slowdown, rates may well still settle far higher than they have been at any point over the past decade. This should be good for bonds. The structural tailwinds that drove the bond rally over the last 40 years may have diminished somewhat, but government bonds are still the go-to asset for portfolio diversification in a recession.
In terms of equities, we think buying good quality companies is important at all times, but especially so when markets are more uncertain, like they are currently. We want to be invested in high quality stocks that are best placed to weather market volatility. We want to avoid speculative investments and instead focus on more established, perhaps ‘steadier’ companies, which have robust business models, strong balance sheets and have good pricing power (making them well positioned to pass on higher costs to consumers).
For bold investors, where should they be looking in 2023?
At a regional equity level, we are possibly most bullish on the US market as we move into 2023. This is largely due to its sector composition, current valuations (following a challenging 2022) and the outlook for the dollar. Until we get closer to the end of the global growth deceleration, one would think the dollar could still strengthen from here. A strengthening currency generally leads to outperformance in common currency terms. If, and when rates come back down, which could start to happen nearer the end of 2023, many of the more growth-oriented stocks (such as those which operate within the technology sector) which are listed in the US, are likely to exhibit better performance after a year where they have been out of favour.
It is important to caveat this with mention to one of our core investment principles which is diversification - i.e. not having all of one’s eggs in one basket. We know that different asset classes will have their time in the sun at different points in the cycle, and therefore having a blend of assets will allow for a smoother performance over time.
What are you most optimistic about in 2023?
I’m an optimist. I prefer it that way. There are signs that inflation is at or near its peak, particularly in the US. The most recent (at the time of writing) November 2022 CPI (Consumer Price Index) figure came in at 7.1 per cent, down from 7.7 per cent in October and below analysts’ expectations of 7.3 per cent. Once we hit the anniversary of the Ukraine war and resultant spike in oil prices, headline inflation measures should start to fall back quite quickly. The Bank of England has estimated inflation to fall from around 11 per cent at the start of 2023 to around four to five per cent by year-end.
General market sentiment is undoubtedly bearish, with most analysts predicting things to get worse before they get better. However, I’m a believer in legendary investor Warren Buffett’s school of thought. He once said: 'Be fearful when others are greedy, and greedy when others are fearful.' Markets often overreact on the way down, and when the dust settles, some great buying opportunities tend to emerge.
What’s the best thing that someone can do with their financial planning at the beginning of the year?
There is so much that can be done, but I’ll focus on two areas.
Firstly, make sure you make use of your tax allowances. Certain allowances, such as the capital gains tax exemption and the dividend allowance, are set to be slashed in April 2023 and again in 2024. This means that making use of them this year is all the more important. Before the end of the 2022/23 tax year, you can invest up to £20,000 within an ISA – all income and gains generated from ISA investments are shielded from the taxman. You can withdraw money from ISAs whenever you like without paying tax, which makes them a useful investment vehicle for pre-retirement goals as well as a tax-efficient source of income in retirement.
The last tip is to seek smart advice. Understanding where to invest, how much you need to save for retirement and what to do to secure your family’s financial future can be really difficult on your own. It could make a real difference to your financial future and give you the peace of mind that you’re making the right decisions for you and your family. We’d be delighted to speak with anyone wanting to review their finances. Do email me at Thomas.Barton@brewin.co.uk.
DISCLAIMER: The value of investments, and any income from them, can fall and you may get back less than you invested. Neither simulated nor actual past performance are reliable indicators of future performance. Investment values may increase or decrease as a result of currency fluctuations. Information is provided only as an example and is not a recommendation to pursue a particular strategy. The above publication does not constitute tax or legal advice. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. The information in this publication is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness. Opinions expressed in this publication are not necessarily the views held throughout RBC Brewin Dolphin Ltd.