2024 An Investor's Guide and Our View

Sources: The Just Service Global Investment Committee, Momentum fund managers (Harmony funds) and Dominion Fund management

7 Risks for Investors in 2024: A Quick Guide (from Momentum)

1. Inflation: Uncomfortably high across major economies, likely leading to slower growth and tighter financial conditions. Conclusion: Brace for stagnation and rising real interest rates.

2. Consumer Resilience: Savings dwindling, unemployment rising; expect reduced spending and higher debt delinquencies. Conclusion: Consumer debt could become a drag on the US economy.

3. China: Slowing growth, fiscal woes, and property market troubles add deflationary pressure globally. Conclusion: Limited Chinese stimulus could dampen recovery elsewhere.

4. Public Debt Levels: Mounting US debt and dysfunctional Congress create uncertainty and limit fiscal flexibility. Conclusion: Debt ceiling showdown could spook markets in 2024.

5. Geopolitics: Ongoing conflicts in Ukraine and the Middle East, plus US-China rivalry, raise security concerns and disrupt trade. Conclusion: Geopolitical turbulence could be a recurring market headwind.

6. Elections: Tight races in key countries, including the US Presidential election, could create market volatility depending on outcomes. Conclusion: US election's potential for a Biden-Trump rematch adds another layer of uncertainty.

7. Tightening Cycle: Mini-banking crisis in 2023 highlights risks, but overall strong balance sheets mitigate systemic concerns. Conclusion: Isolated damage in over-leveraged sectors like commercial real estate is possible.

Our view for 2024

We at Just Service agree with the recent writings of Dominion. They suggest putting aside technology sector (see below for the high growth areas) to consider other growth areas. There's an "old economy" giant quietly powering our modern world, and it's not getting enough love: mining companies and the energy sector.

These might seem like dusty relics of the 20th century, but here's the reality:

Metals like steel and copper aren't consumed, they're invested in. Buildings, roads, vehicles – these are the foundations of a thriving economy, and they're built on mountains of mined metals.

Mining efficiency has skyrocketed. We can now produce a tonne of copper with just 1% of the effort it took in 1800! Innovation keeps driving down costs, fueling economic growth.

But the easy gains are behind us. New breakthroughs are needed to maintain this efficiency, and labor costs and ore quality are pushing prices upwards.

This is good news for mining companies with top-quality assets. Rising costs squeeze out weaker players, boosting the profits of efficient producers.

And the demand for metals is only going to grow. Billions of people across the globe are still catching up with industrialization, and the green energy revolution needs a ton of copper.

The bottom line: Mining stocks are a powerful play on long-term trends like global growth and clean energy. They offer:

Exposure to rising metal prices: As demand outstrips supply, your investments benefit.

A hedge against inflation: Metals hold their value well, protecting your portfolio from rising costs.

Diversification: Mining adds a different dimension to your portfolio, reducing risk and boosting potential returns.

Now back to technology: High-growth areas in Technology 2024

Artificial intelligence (AI): Expect advancements in areas like natural language processing, computer vision, and robotics, driving applications in healthcare, finance, and automation.

Cybersecurity: With increased online dependence, cybersecurity solutions will be crucial. Look for growth in threat detection, data protection, and identity management.

Cloud computing: The shift to cloud-based services continues, fueled by scalability and cost-efficiency. Cloud infrastructure, platform, and software (IaaS, PaaS, SaaS) providers will see strong demand.

Cleantech: Sustainability concerns drive investments in renewable energy, energy storage, and green technologies. Expect advancements in solar, wind, and clean transportation solutions.

Quantum computing: While still in its early stages, quantum computing has the potential to revolutionize numerous industries. Investments in research and development are increasing, making it a promising long-term prospect.

As always talk to your adviser within the Just Service Network if you would like information or otherwise review your personal financial planning.

For all enquiries email info@justserviceglobal.com

Regards

The Just Service Client Service Team

Managing investment products and Opportunities amid Geopolitical Tensions

Source: Just Service Global Investment Committee

Global Investment Outlook:

The global investment landscape for the next 6 to 12 months is expected to be characterized by a combination of moderate growth, persistent inflation, and central bank tightening. While economic growth is projected to slow from the rapid pace of 2022, it is still expected to remain positive in most major economies. Inflation is likely to remain elevated, driven by supply chain disruptions, energy prices, and strong consumer demand. Central banks are expected to continue raising interest rates to combat inflation, which could put some pressure on equity markets.

Impact of Geopolitical Conflicts:

The ongoing conflicts in Ukraine and the Middle East, specifically the ongoing tensions between Hamas and Israel, are having a significant impact on global markets. These conflicts are contributing to uncertainty and volatility, affecting various economic sectors and asset classes.

Energy Markets: The Ukraine war has disrupted energy supplies, leading to a surge in oil and gas prices. This has a direct impact on transportation costs, manufacturing costs, and consumer energy bills. The potential for further disruptions or sanctions on Russian energy exports could keep energy prices elevated, adding to inflationary pressures.

Commodity Markets: The conflicts have also affected other commodities, such as wheat, corn, and metals. Ukraine is a major exporter of wheat, and the war has disrupted planting and harvesting, leading to supply shortages and price increases. This could exacerbate food insecurity in some regions.

Equity Markets: The overall uncertainty and risk aversion caused by the conflicts have led to increased volatility in equity markets. Investors are reassessing their risk appetite and may shift their portfolios towards safer assets. This could affect the valuations of companies and overall market sentiment.

Regional Impacts: The conflicts have a more direct impact on the economies of the regions involved. Ukraine's economy is severely affected by the war, while Russia is facing sanctions and economic isolation. The Middle East conflict could affect economic activity and tourism in the region.

Geopolitical Risks: The escalation of these conflicts could lead to broader geopolitical tensions and instability, further affecting investor confidence and global economic cooperation. The potential for wider military involvement or the use of unconventional weapons could have severe consequences for global markets.

Global Outlook by Asset Class:

Equities:

Developed markets equities are expected to remain attractive due to the ongoing economic recovery, strong corporate earnings, and relatively attractive valuations. However, investors should be mindful of the potential impact of rising interest rates and geopolitical tensions on equity valuations.

Geographic Preferences:

Asia ex Japan offers diversification and growth potential, driven by strong economic fundamentals, rising middle-class consumption, and increasing digitalization. This region is particularly appealing due to its resilience during recent global economic challenges.

Europe is poised for a post-pandemic rebound, supported by fiscal stimulus measures, a favorable currency environment, and the potential resolution of geopolitical tensions.

Thematic Investments:

Sustainability and ESG aligned funds are gaining traction as investors prioritize responsible investing and environmental consciousness.

Technology and innovation funds continue to offer growth opportunities as technological advancements transform industries and most especially AI

Healthcare innovation (via technology) remains a key focus, driven by aging populations, increasing healthcare spending, and advancements in medical technology.

Alternatives:

Private equity continues to attract investors seeking diversification and potential for higher returns.

Hedge funds offer diversification and potential for uncorrelated returns amid a complex geopolitical and economic landscape.

As always talk to your adviser within the Just Service Network if you would like information or otherwise review your personal financial planning.

For all enquiries email info@justserviceglobal.com

Regards

The Just Service Client Service Team

Why do people use offshore investment bonds as a financial and tax planning tool

Source: International Adviser June 2023

In 1988, the Conservative chancellor Nigel Lawson aligned capital gains tax (CGT) rates with those of income tax, and in turn gave the UK one of the highest rates of CGT in the world (40%). These rates remained for 20 years until Labour chancellor Alistair Darling moved to a flat rate of 18% for all.

Now, as then, ISAs could be used to shelter some spare cash, but what if the sum exceeds the £20,000 ($,€) per person, per year ISA limit? An option could be something else that was popular back then – offshore investment bonds.

An offshore investment bond is an insurance policy provided by a non-UK insurance company commonly based in an international jurisdiction such as Ireland, Luxembourg or the Isle of Man. The rules for offshore bonds are such that they are treated as single premium life insurance policies, as they pay a small element of life insurance upon death, but they are really a tax wrapper-investment product.

A single or more regular lump sum investment (deemed a ‘premium’) in most cases will be used to acquire a discretionary investment fund portfolio for the medium to long term, much as a client would if they directly handed their capital over to a discretionary investment manager.

But the life policy provides unique tax efficiencies. No tax is payable on any investment growth unless a withdrawal, or ‘chargeable event’ occurs. If the client had no need to access the funds for a number of years, then gross roll-up of income and gains can considerably benefit the ongoing value of the investment.

This means they can time the tax liability to when it best suits them, which might be when they are a lower rate taxpayer, or when they are living somewhere more tax efficient. This is also the opposite of a personally held investment portfolio, where tax would be due on interest, dividends and gains that accrue annually.

In most cases, a policy will be divided into 1,000 segments. They can choose to wind up whole policy segments or withdraw a percentage of each segment across the board. The best option might depend upon the sum required, whether this exceeds 5% of the cost of each segment, and the availability of any 20% tax band.

The former basis means tax is due on the profit over and above the capital invested in each policy segment. So, if they invested £100 in a policy with 10 segments, which in year two is worth £110, it has roughly gone up in value by 10%. If they withdraw £11 in year two, they will be taxed on £1 of gain, as it represents the 10% profit in one segment (and not the £10 of profit if they took £11 from a directly held portfolio).

The tax can be reduced even further if the policy has been in existence for more than one year. This is called ‘top slicing relief’ where the gain on the withdrawal is divided across the years, with one year’s worth added to the income of the year of withdrawal. The tax on this sum is calculated, and then multiplied back up by the number of years to get the actual tax due.

It might sound like you should end up with the same amount as if you simply taxed the whole profit, but not if the year of withdrawal happens to be one where you have some or all your 20% rate band to spare, which might be the case if you are in retirement.

Retiring abroad

Let’s now include the added complication of retiring abroad – how does this affect how the offshore bond is taxed? Luckily enough, most EU states where UK nationals like to retire have their own offshore bond legislation, and again there are various tax efficiencies to benefit from.

Though it depends on the country, the basic tax deferral position continues to apply, with gross roll-up and the possibility of timing when it is best for the client to take a tax liability. While policy segmentation is irrelevant abroad and there is no top slicing, the fundamentals of only taxing the profit percentage within a withdrawal remains.

In addition, in Portugal the gain is reduced by 20% after the policy has been in existence for five years and then by 60% after eight years. There is also a choice as to whether to pay tax at a flat 28% or through the scale rates in Portugal.

In Cyprus, there is no tax payable on offshore bond withdrawals, and similarly in Malta, a UK national would not normally suffer any tax on a withdrawal from an offshore bond.

Both France and Spain only tax the increase in value contained within the sum withdrawn, while France includes significant succession tax benefits and the policy is French wealth-tax-free. In Spain, the bond could fall outside of Spanish succession taxes if the beneficiary is not Spanish resident.

If we take our example even further and assume at some point they decide to return to live in the UK, this can be hugely beneficial when they make a subsequent withdrawal or wind up the policy. Any gain is averaged across the whole period of ownership, and the years of residence overseas are deemed exempt, with HM Revenue & Customs (HMRC) only taxing the years when they lived in the UK.

The financial and tax planning issues are very different for non-resident Brits, referred to as part of the "off-shore" market, as compared with UK residents. It is critical to always receive advice from licensed offshore advisers.

Whenever you have any questions, we urge you to talk to your adviser within the Just Service Global Network.

For all enquiries email info@justserviceglobal.com

Regards

The Just Service Client Service Team