In the last update we talked about our investment risk matrix, and using this we wanted to share some thoughts on China which has an amber risk rating. At the same a lot has happened in a month and so we have also added a note on the Autumn Statement and Performance Benchmarks.

December Spotlight

We are coming to the end of 2022, and what a year it has been! In this update I want to focus on three areas: China, the Autumn Statement and Performance.


China’s 20th Communist Party Congress drew a great deal of negative sentiment. These centred around Xi Jinping becoming Head of State for a third time, a new team of more hard-line policy makers, a desire to safeguard China’s sovereignty and the desire to see state owned capital and enterprises get stronger and bigger.

The assumption by many is that China will invade Taiwan. The consequences of this action would likely follow the route of Russia, with sanctions being put in place. If this assumption is correct then this would effectively be a global “nuclear” fallout. China would lose all access to semiconductors and the world would lose access to the China market. This wouldn’t just see a fall in markets in China, but globally.

Why we think this is unlikely to happen is simple.

One of the key concerns coming from the conference was internal threats. Common prosperity is a key theme. Anything that disrupts that could cause significant unrest. When we read the paper coming out of the conference there are certain phrases which paint a very different picture to that which is reported:

“focused on promoting high-quality development”

“bring per capita disposable income to new heights”

“substantially grow the middle-income group as a share of the total population””

“development is our Party’s top priority”

“we will provide an enabling environment for private enterprises”

It is fascinating that the greatest fear is starting to erupt. The zero-covid approach is clearly unpopular and the party need to do something. We can’t say with certainty of the outcome but if they can calm this and focus on the key aims over the next five years, this should pass.  

To conclude, China will overtake the US as the largest global economy and investors should have access to that opportunity because it is not like Russia. There will always be risks but the balance of probability of invasion is low, although the sabre rattling between China and the US will likely be noisy!

Autumn Statement

In September it was all about lower taxes. That has all gone! The key changes are:

  • Additional rate tax at 45% is paid at £125,140 from 6 April 2023
  • Dividend allowance is to reduce to £1,000 for 2023 / 24 and to £500 from 2024 / 25. There are no changes to the tax rates on dividends (8.75%, 33.75% and 39.35%)
  • Capital Gains Allowance will reduce to £6,000 from April 2023 and £3,000 from April 2024. There are no changes to the rates of tax (10% and 20%)
  • Freeze on nil rate band and residence nil rate band has been extended for an additional two years until April 2028
  • Corporation tax will rise to 25% from April 2023

To conclude, areas to consider for additional planning will be around tax efficient investments and inheritance tax planning.


This year has been difficult to navigate. Our fundamental aim at LWM is to grow wealth over time. We are not looking to take big single bets on a particular economy or sector but provide a diversified mix of assets.

We aim to meet with all the managers of the funds we hold at least once a year and analyse other potential opportunities. We cannot guarantee positive returns and of course in periods such as this it is challenging.

We wanted to share a couple of things which we hope will provide faith in the process over the long term.

AimTo deliver a return of between 6% and 8% gross over the long-term. This should, in a normalised environment, be above the higher of cash rates or inflation  
BenchmarkOur benchmark is based on a basket of index strategies  
Time frameWe consider long term as 10 years plus  
Risk / volatilityThe returns reflect the level of equity within a portfolio: the higher the equity exposure the higher the potential returns  

The table below shows the performance of the Balanced Portfolio over a 1-, 3-, 5- and 10-year period:

 1-year (p.a.)3-years (p.a.)5-years (p.a.)10-years (p.a.)
LWM Balanced Portfolio-16.97%1.33%2.55%7.04%

When we look at the ten-year figure, even with the current environment the gross annualised return is 7.07%, which is within the range we have set as our aim.

This has exceeded the benchmark by +1.82% p.a., cash by +6.86% p.a. and RPI by +3.22% p.a.

The second point is that many of the investments we hold have a quality overlay. This means that the fund managers focus on companies that are growing and have low levels of debt. The market has been indiscriminate in selling down, however when the market turns we believe this will benefit the portfolios.

We saw this from Mid-June to Mid-August:

To conclude, the easiest time to invest is when markets are going up. We cannot help but feel uncomfortable in periods such as this. The chart below shows that we should expect small periods of recovery, but it doesn’t necessarily mean the bottom has yet been reached.

Fundamentally, our aim is to build wealth over time and deliver a return of 6 to 8% p.a. over a ten-year period. We constantly stress test the portfolios which is part of the process we have built and developed over the last ten years. We cannot guess when the markets will recover, however, we know that they eventually will. We have also had a glimpse which indicates that when that recovery comes, the portfolios should be in a strong position.

Tracking the market

Bitcoin continues to tumble indicating the volatility of the share class. Gold has recovered, and the FTSE 100 has moved into positive territory. Although the Hang Seng is down -20.44% it has recovered strongly in November up +25.82% in the month. We also saw recoveries across US and European markets.

 1 January 202230 November 2022Increase
Bitcoin USD47,686.8117,168.57-64.00%
Crude Oil76.0880.55+5.88%
S&P 5004,796.564,080.11-14.94%
Stoxx Index489.99440.04-10.19%
FTSE 1007,505.207,573.10+0.90%
Hang Seng23,374.7518,597.23-20.44%
Nikkei 22529,301.7928,226.08-3.67%

Sources of data: CNBC, Yahoo Finance & Reuters

What is in and what is out?

Energy still dominates the top ten funds with 8 out of the 10 funds being energy related. Interestingly, the top two are not energy funds! The top three are HSBC MSCI Turkey NAV GBP +97.60%, iShares MSCI Turkey UCITS ETF GBP +97.40% and iShares S&P 500 Energy Sector UCITS ETF CHF.

The bottom ten remains a diverse mix of technology, emerging Europe, and US. The bottom three are HAN ETC Group Digital Assets & Blockchain Equity UCITS ETF Acc USD -78.20%, HAN Global Online Retail UCITS ETF USD -71.40% and Schroder ISF Emerging Europe A Acc NAV EUR -67.40%.

The most recent data from the Investment Association is up to the end of September. Areas seeing large outflows of assets included Europe ex UK -£348 million, Global -£1,337 million, Global Emerging Markets -£411 million, North America -£554 million, Specialist -£324 million, UK All Companies -£1,081 million, £ Strategic Bond -£292 million, Government Bond -£273 million, Mixed Bond -£235 million, Specialist Bond -£542 million and Total Absolute Return -£949 million.

With so much money coming out the question is where it went? The main winners were Global Equity Income +£126 million, Specialist Bonds +£365 million, UK Gilts +£412 million, UK Index Linked Gilts +£202 million, Infrastructure +£134 million and Short-Term Money Market +£118 million.

September seemed to reflect investors nervousness and the move away from equities to perceived safer assets. This is reflected in the chart below, showing this as the worst month for retail sales this year:

It is perhaps worth reflecting on how we summarised last month. Investor behaviour is such that when markets are rising, they tend to invest, and when markets are going down, they tend to take money out. We can’t predict when the bottom of the market will come but we do know throughout history that the recovery comes when we least expect it. We often turn to the Warren Buffett quote, “be fearful when others are greedy and greedy when others are fearful”.

Clearly looking at the data there is a great deal of fear, and perhaps it is a brave person who invests now against all the negativity that is around. We have however kept the two charts below in this update as they are powerful illustrations on holding our nerve in periods such as this.

Sources of data: TrustNet, Investment Association, Putnam

Talking shop with fund managers

One of the key elements of our process is to meet fund managers and research funds. We have now met or reviewed all the funds within the portfolios this year. This has been a rich source of information and provides us with confidence moving forward.

Some of the key aspects of the funds we invest in are:

  1. All the strategies have some form of ESG screening for the companies they invest in. This is a quality overlay which considers environmental, social and governance factors. It is important to understand that ESG does not necessarily exclude companies so they can include oil, tobacco etc. We do have exclusionary funds within the Positive Impact Portfolios
  2. We know that in most funds we invest in the companies that are held have low levels of debt, tend to be leaders in their fields and are profitable
  3. We know which funds carry greater risk but also the potential for greater returns
  4. We can also see that our process and strategy works over the long term, but are aware there are periods when they will underperform

We have recently received positive feedback on our process from our auditors and we freely share our reviews on funds on the website –

Just to finish for this year, it is worth highlighting that we currently use Morningstar as our research tool, and we are exploring additional tools to further improve the process. It is important that we evolve and new tools will help with this.

General disclaimer: The data has been sourced from external sources and although we have looked to ensure this is as accurate as possible, we are not responsible for data they supply. The view on markets is written in a personal capacity and reflects the view of the author, it does not necessarily reflect the views of LWM Consultants. Equally the views under talking shop are those of individual fund managers. Individuals wishing to buy any product or service because of this blog must seek advice or carry out their own research before making any decision. The author will not be held liable for decisions made because of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.