We examine the many events occurring over the Atlantic, as well as updating on the latest situation with UK property funds.
The twists and turns of the US election have been a key focus in the news. The Presidential hopefuls went head to head in the first televised debate of the race to the White House. Interruptions plagued the event, with candidates unable to utter as many characters as a Donald Trump tweet without being talked over1. The ‘back and forth’ was roundly criticised by the press as being an embarrassment2. It was less policy more personality, with a bombastic and boorish Donald Trump interjecting, and Joe Biden asking the incumbent, “will you shut up, man?”.
More worryingly, the President refused to condemn white supremacy. He danced around the simple question and would not denounce the right-wing extremist group Proud Boys, instead telling them to “stand back and stand by”3. This is even more poignant, as October marks the start of Black History Month4 in a year that has seen the Black Lives Matter movement and global demonstrations against racial injustice become a key focus. There seems to have been a renewed interest amongst many in how to become a better ally against racism, a sentiment that is apparently not shared by President Trump.
One of the discussion points was the feasibility of the Green New Deal. Joe Biden stated that he doesn’t support the plan but would instead propose alternative climate change legislation5. Former Vice President Biden did promise to re-join the Paris Climate Accord, whereas Donald Trump maintained his claim that the agreement would cripple US businesses.
The polls following the debate indicated that most people felt Mr Biden had performed better6. The next debate is scheduled to take place in Florida in two weeks’ time, and there are already plans in place to improve moderation, with the potential to cut off the candidates’ microphones if they violate the rules7.
However, since the debate, there has been troubling news from the White House with the President and First Lady testing positive for Covid-198. Mr Trump was then hospitalised, but last night left, claiming “I feel better than I did 20 years ago!!” and controversially ripping off his mask on the White House balcony9.
The debate between Kamala Harris and Mike Pence, due to take place in Utah on the 7th of October, has suddenly taken on new importance10. The complications in the campaign trail could mean that this Vice-Presidential exchange is watched far more closely than it might otherwise have been.
Back in the UK, the Financial Conduct Authority published a consultation paper last month, regarding open-ended property funds and the potential for a 90- or 180-day notice period for redemptions11. At this stage, it is merely opening a dialogue between the regulator and the fund providers. The aim is to solve the difficult task of achieving liquidity in an illiquid market (an issue because properties cannot be quickly turned into cash to meet withdrawals). Back in March, regulatory guidance led to these funds ‘closing the doors’, which left investors unable to withdraw their capital. This guidance has now been pared back, and consequently, the onus on reopening now rests with the funds12. However, it is not a simple process. As commercial properties cannot be sold quickly, redemptions may exceed liquid assets (cash) in the fund. We expect that the funds will extensively gauge not only initial redemption levels but put in place a longer-term liquidity plan to prevent future suspensions.
The positioning of our UK property funds stood them in good stead for the chaos of the pandemic, having increased their cash weighting to protect against forced selling activity in unfavourable circumstances back in 2016. From an ethical perspective, our funds extended rent deferral schemes to the small portion of their tenant base that struggled due to lockdown measures. We will continue to monitor the sector and maintain regular contact with our property providers, bringing you regular updates when appropriate.
Finally, for environmental investors, some positive news from the US as alternative energy shares continue to demonstrate strong performance. NextEra, the clean energy company, is now worth more by market capitalisation than Exxon Mobil. NextEra’s ascent and ExxonMobil’s decline reflect a collapse in oil consumption in the pandemic, a rise of renewable resources on the electric grid and investors’ desire for steady returns at a time of low interest rates13. This increases the likelihood of a future spending boom in green infrastructure, particularly if there is a democratic election victory due to Mr Biden’s proposals to decarbonise the power sector by 203514.
Most of you will no doubt be aware that the UK Autumn Budget has been cancelled. However, this does not mean that the likelihood of tax rises over the next year or so dissipates. We would therefore suggest that potential decisions concerning capital gains, estate and pension planning are made prior to the next budget. As always, please contact us if you have any questions.
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Please note that any thresholds, allowances, percentage rates and tax legislation stated may change in the future. The content of this communication is for your general information and use only; it is not intended to address your particular requirements. This communication should not be deemed to be, or constitute advice. You should not take any action without having spoken with your usual adviser.