The fallout differs from previous economic setbacks in many ways, but largely because it has disproportionately harmed specific industries, such as travel, hospitality and leisure, whilst many companies in services or technology-based industries have been relatively unscathed. Unfortunately, many lives, businesses and jobs have been lost and a period of uncertainty is likely to continue for some time.
The pandemic has caused significant damage to global economies, as evidenced by the UK, which recorded its sharpest ever quarterly drop in GDP in history, with the economy shrinking an estimated 20.4% from April to June. The FTSE 100 itself has been one of the worst performing major indices year to date, down around -17%. This is primarily due to the weighting that the banks, oil companies and miners have in the index, all of which face structural challenges as the world navigates the current issues.
Dividends have come under significant pressure over the last few months, with many companies slashing shareholder distributions in reaction to the fall in global demand and uncertain outlooks. We expect the overall dividend pay-out ratio to be around 10-20% below 2019. Clearly, this could make for tougher times for those clients investing for income and I would encourage anyone in this camp to discuss their specific investment needs with their investment manager.
It is at times such as these that we feel we can add value to our client relationships. By offering a personalised service, we can be extremely flexible should circumstances change, as our investment managers are not beholden to a prescriptive list of investments. Additionally, we pride ourselves on building meaningful and long-term relationships so that as and when you need to discuss your circumstances with someone, we can be there to guide you along the way. Of course, we understand not all clients require or want that regular communication and rely on reading this publication to get their updates from the firm, but we do advise periodic conversations with your managers, particularly in light of the likely impending change to capital gains tax (CGT) rates.
We have as ever tried to pull together a varied range of topics to discuss in this edition. Inflation, negative interest rates and UK residential property are all areas I would expect many clients to be interested in; we also include an interesting review of UK productivity, which highlights where we as a nation are lacking, but which goes on to suggest that a focus on digitisation and technology can be the tonic needed for the country to realise our full potential.
Many readers will be aware that we have announced a change of management to take effect from January 2021 with Hugo Bedford taking over as Chief Executive Officer from Steven Sussman. Hugo has been an investment director with the firm since 2006 and importantly, understands the needs of investors and what they expect from their wealth managers. You can read more about him and his thoughts for the new role on page 26. I will be continuing as a director and investment manager at JM Finn and very much look forward to working with Hugo to ensure the firm remains in good shape and can continue to look after today’s clients, and those of future generations, by staying focused on putting our clients’ interests first.