Archive for May, 2018

Recent Financial Market Activity

Monday, May 14th, 2018

5By Scott A. Middleton BA(Hons), Chartered Financial Planner, James & George Collie Financial Management Limited

In a change from our normal practice of concentrating solely on the events of the last quarter, we expect investors will be interested in the events that triggered sharp falls in the first few days of the new year, especially given the media coverage this attracted. Therefore, we are extending the period under consideration slightly into the first couple of weeks of February.

As at the end of the quarter, investors had generally enjoyed another quarter of strong returns capping off a good year during which markets continued to provide positive returns for equity investors. Fixed interest investors have seen small returns from corporate bonds although there was a small fall in the value of Gilts, the second quarter in a row that UK Gilts fell in value.

Within the various equity sectors the most notable performance came from Global Emerging Markets, returning 4.26%, Asia Pacific ex-Japan returning 3.24% and North America returning 2.81%. Europe ex-UK, which performed well generally during 2017, lagged in the last quarter returning 0.78%.

The strong performance from equities in recent years has been due to the global economy performing better than expected, and the higher forecast for economic growth leading to increased confidence that company earnings will rise in the future, boosting share prices.

This current environment of economic strength emerged slowly from a period of intense anxiety in 2009 following the systemic failure of the global banking system. The path to recovery was created through dramatic action from central banks, cutting interest rates and printing trillions of dollars (or their equivalent local currency) in order to reduce borrowing rates to historical lows. This provided cheap finance and liquidity to the entire global economy and was ultimately successful in restoring economic growth.

At the present time the International Monetary Fund (IMF) is predicting that all of the economies it represents will experience positive growth in 2018. This picture of synchronised economic growth is a firm sign of confidence and is reinforced by various other economic leading indicators.

These factors combined to provide further upward momentum to stock markets which had already enjoyed a sustained period of growth with historically low levels of volatility. Towards the end of the quarter some falls were seen, which accelerated in recent days. At the end of March 2018, the Dow Jones, which measures the performance of the largest US company share prices, has fallen by approximately 10% from the peak whilst the FTSE 100 has fallen by around 8%. What has triggered these falls and what should investors expect from here?

Whilst the recent downturn has been in contrast to the previous period of stable upward returns, corrections of this type are normal, and occur frequently in both upward and downward long term trends. One of our responsibilities as investment managers is to stress test these types of events when constructing portfolios, to establish that the level of risk is appropriate to the objectives that we are aiming to achieve. The timing of a correction is often a surprise but the correction itself is expected.

Corrections often indicate a change in market expectations and understanding, which can be used to identify investment opportunities going forward and also have a useful cleansing effect. This can be visualised as the outgoing tide levelling the sand, after a sunny day at the seaside.

The cause of the alarm on this occasion is good news, in our opinion, and closely follows the views we have expressed in previous updates. Figures from the US, relating to the labour market, showed healthy levels of employment and wages increasing at a higher rate than previously thought. The prospect of people earning more and finding work easily is a sign of strong economic growth and is usually something to be cheered. On this occasion stock markets greeted the news with pessimism; why?

Within our previous updates we have discussed the interest rate cycle, which has been falling since the 1980s, representing a very long cycle length. In addition, we proposed that few investors had experience of a rising rate environment as most careers of investment professionals did not go back that far. Furthermore, we felt that the improvement in economic conditions suggested that this long term cycle was changing and we were now entering an upward interest rate cycle, which would change the behavioural characteristics of many asset classes.

The recent market downturn is a reflection of investors generally coming to the same conclusion and becoming concerned that interest rates will now rise, as central banks take action to keep inflation at around 2%. The era of cheap money is coming to an end and undoubtedly there are many assets which have seen their valuations fluffed up by this phenomenon and are now looking vulnerable. Where assets sell-off in one sector the effect of market correlations often causes sell-offs in other assets. Some assets go on to recover their value whilst others do not.

Fixed interest investments are sensitive to interest rate rises, as are companies reliant on raising ongoing capital, because the increase in interest rates has a detrimental effect on both of these asset values. Within these markets there are some worryingly high valuations, particularly within high yield bonds, long dated bonds and companies with massive valuations, but with negative earnings. We have positioned away from these assets prior to the recent downturn and we expect that some of the losses being experienced in these areas may not be recovered.

In terms of the broader markets we have reasons to expect asset prices to regain their upward momentum and these falls represent a buying opportunity rather than a signal of a prolonged downturn. Whilst central banks are moving into a rate rising cycle we expect this to be a very slow and measured process. Given the significant efforts which have been made to drag the global economy out of the 2009 credit crisis we believe that central banks will be anxious about choking the economic recovery and therefore inflation will be allowed to run over target rather than pursued aggressively, at least in the early years of the rate rising process.

For example, interest rates in the UK are currently 0.5% and, at the most, are expected to rise to 1% by then end of the year even after the latest comments from Mark Carney, the Governor of Bank of England, suggesting that rates would move earlier and higher than previously expected. A future rate of 1% is hardly an economic activity choking prospect and would still be a historically low level although it would be bad news for interest rate sensitive assets as mentioned previously.

Furthermore, the wage inflation which has caused the recent concern is actually preferable, in the medium and long term, to the alternative of stagnant wages. In order to continue an upward economic cycle it is important that wages rise in real terms in order to allow future consumption to rise. If wages do not rise faster than inflation then consumer debt builds to the point that consumption falls dramatically and leads to a recessionary outcome.

It is our view that the current shakeout of asset prices is a useful and necessary event. The assets most at risk are these which have benefited from speculative interest or where the valuation is heavily dependent on a low interest rate environment. Growth stocks have benefitted considerably in the market rises and some of these stocks now look vulnerable.

Tesla is a useful example, and this business requires new capital of hundreds of millions of dollars a year in order to keep trading, as revenues do not come close to meeting operating costs. Whilst a company like this may change the world in the future the inherent risks to investors are obvious and if capital is more expensive in the future this will add additional costs to the business model pushing the breakeven position even further into the future.

Value orientated stocks have provided reasonable returns but have not generally kept up with their growth counterparts. These companies have mature and predictable business models and whilst their upside potential is more modest they tend to be driven favourably by economic growth and are not sensitive to the relatively modest interest rate rises which are now expected.

In conclusion, whilst it is difficult to predict how long or how low a correction will go, we remain confident that global equity markets will continue in an upward cycle. The current market conditions provide an opportunity to increase equity positions with a bias towards companies linked to economic growth, which is expected to remain positive. The rate rising cycle will be gentle, but negative for fixed interest investments, which have a high degree of sensitivity and we have already limited our exposure to these areas.

The nights are getting longer, the weather is getting better (sort of!), and as we embark on the new Tax Year it is perhaps a good time to consider your finances.

Pension/retirement planning

Investment management

Estate planning

Tax planning

When it comes to making investments and reviewing finances, there is no substitute for taking specialist advice, but remember that markets can be volatile and the value of investments can go down as well as up.

To arrange an appointment with one of our experienced and professional advisers contact us on 01224 581581, or email Scott Middleton at

EU Succession Regulation

Monday, May 14th, 2018

euflagIf you have connections with more than one country, you need to know which country’s law will govern who inherits your estate when you die. This is important because the law of some countries provides that certain shares in your estate are reserved for close family members.

The EU Succession Regulation (EU 650/2012) (“the Regulation”) known as Brussels IV applies to all deaths on or after 17th August 2015. The aim of the Regulation was to unify succession laws across EU Member States.

The Member States which have signed up to the Regulation are: Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Estonia, Finland, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden. All EU Member States have signed up to the Regulation with the exceptions of the UK, Ireland and Denmark.

Prior to the Regulation coming into force, for those individuals with assets in more than one county, various factors were considered by the courts in determining which law should apply to the succession of those assets. Different jurisdictions applied different tests such as nationality, domicile and residence for example in order to determine what laws should apply to an individual’s estate. In some EU Member States, the law to be applied depended on whether the asset was moveable property such as money in the bank or shares, or heritable property such as land or buildings. This could often lead to conflict of laws where the different jurisdictions applied different connecting factors.

When an individual dies, if the Regulation applies, the default position is that the law applicable to the succession of that person’s estate is that of the country in which they were habitually resident, regardless of where the assets were situated and whether they were moveable or immoveable. The intention was that only one succession law will apply in any given case. An individual may choose to override the default position by electing in their Will for the law of their nationality to apply instead. Individuals who have more than one nationality can choose any of their nationalities to apply.

The default position can also be overridden if an individual was manifestly more closely connected with another country when they died, for example they had only just recently left that country.

Although the UK has not opted into the Regulation, it will still affect UK nationals who are resident in a Member State which has signed up to the Regulation or have assets in Member State which has signed up to the Regulation, such as a holiday home. The Regulation affects all assets in the Member States which have signed up to the Regulation, regardless of the place of death or citizenship of the deceased, even if they have no connection to those States or even to Europe.

As the UK has not currently opted into the Regulation, the position for UK nationals is unlikely to change following implementation of the Brexit vote, however this is not certain.

How might the Regulation affect you?

If for example an individual lives and is domiciled in Scotland and owns a holiday home in France, France will apply the Regulation. The holiday home in France will likely be governed by French law because Scottish law says that immoveable property located in France is governed by French law. However it is possible for that individual to make a Will in Scotland in which they choose Scottish law to apply to the Succession of their estate as a whole. In that case, France should apply the rules in the Regulation and Scottish Law should apply in relation to the succession of the whole estate, including the holiday home in France.

If someone who was born in Scotland moves to live in Cyprus and becomes domiciled there owning houses in both Scotland and Cyprus there could be a conflict between which law is to apply. Cyprus will apply the rules in the Regulation. This would mean that Cypriot law would apply to both the house in Scotland and the house in Cyprus. However Scottish law would apply Scottish law to the house in Scotland because it is immoveable property located in Scotland. This could lead to uncertainty and possible disputes. It would be possible to remove this uncertainty by including a choice of Scottish law in their Wills. Cyprus would then apply Scottish law to their estates as a whole, including both houses.

If you have connections with a Member State who has implemented the Regulation, the Regulation may not just affect who benefits from your estate when you die, it can also affect who administers your estate, how your estate is taxed and if certain family members are automatically entitled to shares in your estate.

If you believe that the Regulation may affect you, you should review any existing Wills to make sure that no amendments are required. You should be aware that any advice you received in the past may no longer be correct following the introduction of the Regulation. It is better to make a Will than to have a costly and time consuming cross-border legal dispute following your death.

If you own heritable property abroad it may still be beneficial to have a Will in that country dealing with the heritable property there as the Will should be drafted in accordance with local formalities and may make the transfer of that property easier. Both Wills should include the same choice of law.

For UK nationals living in the UK with property in a Member State who has signed up to the Regulation, it may be better to make a choice of law in your Will than to rely on the law of habitual residence being applied. You may therefore wish to consider making a “choice of law” election in your Will. Should you wish to discuss this or any other aspect of your Will or succession please contact Philip Dawson (Email: or Vivienne Bruce (Email:

An interesting contest – Family Law –v- Property Law?

Monday, May 14th, 2018

justiceA recent decision by the Sheriff Appeal Court in the case of Grant v Grant has shed some light on the situation where the law of property conflicts with family law and once again underlines the need for pre-nuptial agreements where one party is bringing assets into the relationship of a value greater than any assets which may be brought into the marriage by the other party.

In this case the issue was whether or not certain property comprising a plot of ground and a house which had been built on it, could be considered to be matrimonial property. The law of property states that the owner of land owns everything which is built on that land irrespective of who has paid for it. In the current case land was owned by the husband before marriage and a house was built on that land during the marriage. The Sheriff at first instance held that the land belonged to the husband but that the building materials which were used could be deemed to represent matrimonial property. Neither party agreed with the Sheriff’s decision which appeared to be a mixture between the law of property and family law. The parties agreed that either the house and the land upon which it was built was matrimonial property or it was not. There could not be a “middle cause” on the matter in dispute. The husband argued that the house and land were not matrimonial property since the land was acquired by him prior to the commencement of the parties relationship, some seven years prior to the marriage. When the house was built the house acceded to the land and therefore as the land was not matrimonial property the house itself was not matrimonial property.

Not surprisingly the wife took a different view and argued that both the house and the land were matrimonial property. Instead of relying on the law of property she relied on the terms of the Family Law (Scotland) Act, 1985 and argued. In family law an essential step in seeking to resolve matters is to identify the extent of the matrimonial property. The definition of “matrimonial property” is not one derived from property law, but is a creation of the 1985 Act and in particular Sections 9 and 10 of that Act. The term “matrimonial property” is defined as meaning “all property belonging to the parties or either of them at the relevant date i.e. the date of separation which was acquired by them or him……. before the marriage for use by them as a family home………. or during the marriage but before the date of separation”.

The Appeal Court took the view, in addressing what constituted the property in question, that this comprised both the house and the land upon which it was built. It should be seen to be a single item of property and not, as the Sheriff determined, property which falls into two separate classes namely the land itself on the one hand and the constituent elements of the house built upon it on the other. They then concluded that the single item of property in issue could only have been “acquired” when the house was completed i.e. during the marriage. The third matter which the Appeal Court had to consider was whether or not the property was acquired as a matrimonial home. Whilst the facts of the current case did not fit easily into authorities dealing with this matter the Court took the view that the wife had made sufficient averments to at least warrant enquiry as to whether or not the disputed property is matrimonial property. Whilst the Appeal Court did not find that the property did in fact comprise matrimonial property they at least allowed the wife the opportunity to lead evidence in support of her contention that it did.

For any further information or advice on the contents of the above article or any other Family Law related matter please contact Graham A. Garden by telephone on (01569) 763555 or by email at or any of our members of our Family Law team.

Latest Partnership News

Monday, May 14th, 2018
Mark Allan, Richard Shepherd & Tony Dawson

l - r: Mark Allan, Richard Shepherd and Tony Dawson

Every (Collie) Dog Has His Day

Tony Dawson finally retired as a Partner in James & George Collie on 31st March 2018 after 42 years as a partner –for many of which he acted as Managing or Senior Partner.

However, Tony continues to be associated with the firm as a Consultant working similar hours as before!!

He has also managed to persuade the partners that he should retain his office, his parking space and most importantly his modest expense allowance, so the profits at local hostelries are secure!

The continuing partners would like to thank Tony for his long service and dedication to the Firm.

His contact details remain the same as before – (email) and 01224 581581 (telephone).

Other Recent Changes

In addition to Tony Dawson’s retirement mentioned above, there have been some other recent partnership changes.

Two other long-serving partners – Anne-Maryse Churchill and Gregor Sim – stepped down as partners on 31st March, but will continue to be associated with the firm as consultants whilst Mark W Allan, previously an associate, was appointed as a private client partner, on 1st April. Mark joined the Firm in September 2014, and has over 10 years’ experience, primarily in residential conveyancing. Mark can be contacted by email at or by telephone on 01224 581581.

Richard D M Shepherd, managing partner, commented:
“We are delighted to have Mark on board; Mark is exceptionally hard working and we are delighted to recognise the contribution Mark makes to the Firm with this well-deserved appointment.  

We are also very grateful to Anne-Maryse and Gregor for their dedication and loyalty to the firm and its employees and clients and wish them every success in their future endeavours.”