A lost decade for investors?

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27 September 2011 Last updated at 07:46 GMT By Gemma Godfrey Investment committee chairman, Credo Capital Gemma Godfrey: there is an investing "sweet spot" Over the past 10 years, investors have experienced a stark divergence of fortunes, with some making substantial amounts of money whilst others have suffered losses.

Timing, picking the right investments and employing the right strategy have determined their fate.

When investing, timing can be crucial. You make money if you buy something when it is cheap and sell it when it is perceived to be more valuable. If you buy the same object when its price is high, making a profit will be that much harder.

In the run up to the year 2000, investors bought shares in technology companies to such an extent that values predicted firms would make unrealistic profits. This 'bubble' burst and the stock market fell. September 2001, the start of our 10 year period, lies within this period of selling. Therefore, together with the fall from the financial crisis in 2008, losses were enough to offset the substantial gains achieved in the seven years between these events.

Investing in the 'sweet spot'

An initial investment of ￡100 in the FTSE 100 (the index of the 100 largest companies listed in the UK), would have fallen in value by 4%, returning only ￡96 all these years later.

This return hides a huge divergence of fortunes. Firstly, when choosing the size of the firm in which to invest, there appears to have been a 'sweet spot' for medium-sized firms in the FTSE 250 (the next 250 companies after the largest 100 listed on the London Stock Exchange) - small enough to grow substantially, but large enough to have weathered the storms.

Secondly, the sector. The shares of companies selling basic materials almost tripled in value over the past decade, in contrast to those of financial firms, which lost half the initial investment. The belief driving these moves was that certain materials (for example copper and iron) have become harder to mine and produce, making their producers more valuable. In contrast, banks have suffered from loan defaults, bankruptcies and increased regulation, which have all hurt profits.

Thirdly, the geographic focus. Whilst investing in UK, US or European companies on the whole produced meagre returns or losses, investing in the developing markets of China, Russia or Brazil generated astounding returns; Brazil stands out with a gain of 578%.

Basic Materials outpaced the FTSE 250, while the FTSE 100 did better than financial shares Reinvesting is key

Short-term investment decisions have had as much of an impact as choosing where to place money for the longer term.

During our investment timeline, many companies regularly paid a portion of their profits to shareholders, so-called dividends. How an investor used this payment strongly dictated how much money they made.

If it was re-invested back into the stock market it continued to generate returns, if it was put into their bank account it did far less.

The MSCI World Equity index - boosted by reinvesting returns, lagging when taking out the money Wealth of opportunity

There are other assets an investor could have bought apart from shares, some of which performed far better and greatly enhanced the amount of money made over this period.

Lending to governments or companies in developing countries proved highly profitable, with relatively large interest payments made to the lender (i.e. the investor) until the loan was repaid.

Another interesting investment was property, which in general provided investors with highly attractive returns over the past decade, even after the sharp correction during the recent recession.

Finally, hedge funds, like investors, have had a mixture of fortunes. With focus on different markets, some have made staggering returns whilst others are still nursing losses.

Interestingly, it has not been worthwhile to bet on a falling market. Money managers lost money if they focused solely on making a profit when certain investments fell in value.

Unsurprisingly, fund managers with investments in emerging markets (like Brazil, Russia and China) almost tripled their initial investments.

When investing, during the past decade it paid to be particular.

Brazil was the top performer; hedge fund investments in emerging markets were runner up; government bonds did well; the S&P Global Property index provided returns; UK stocks were lagging

Gemma Godfrey is a quantum physicist, former hedge fund manager and now chairman of the investment committee of wealth management firm Credo Capital.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent, professional advice for your own particular situation.

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AUDIO: Germany 'committed to eurozone'

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Germany's Chancellor Angela Merkel will today ask her country's politicians to sign off a plan to give more money to Europe's bail out fund.

Peter Altmaier, leader of the parliamentary group for the Christian Democrats, predicts the result and the long term consequences for Angela Merkel.

And Europe editor Gavin Hewitt previews a test of her power and authority.

Get in touch with Today via email , Twitter or Facebook or text us on 84844.

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Could impact investing help India's poor?

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29 September 2011 Last updated at 08:34 GMT By Shilpa Kannan BBC News, Delhi Virender wants to grow his business of recycling plastic Sorting out plastic bags collected from rubbish tips is a serious business for Virender Kumar.

Sitting on a pile of plastic bags, he is busy giving directions to the labourers he employs to help him with the recycling.

Once the bags are sorted, he sells them to recycling units to be melted down into plastic pellets.

He makes about 20,000 rupees ($410; ￡262) profit every month. But he has bigger ambitions that need funding.

He says that by working overtime, he saved money to start the recycling unit. But now he wants to hire more people and expand the business.

"But everything needs money," he says. "Banks don't lend to people like me."

India's growing middle class has been a target for many companies, but now another segment of society is increasingly becoming a focus for investors - people living below the poverty line.

But can businesses make a profit and also serve a social purpose?

Loan controversy

People like Mr Kumar are now being wooed by financial institutions such as the Shriram Group.

While millions of people across India have little or no access to formal finance, investment funds which want to make a social impact are lending a helping hand.

These funds invest in people and sectors that traditional banks ignore. It is called "profit with a purpose".

But they are using insurance as a means of helping small businesses rather than loans.

Microfinance, or giving small loans to low-income borrowers, has received a lot of bad press in India recently.

The sector was booming until a spate of suicides by borrowers in the southern state of Andhra Pradesh led to the authorities tightening regulations.

At its peak, the microfinance sector saw almost $7bn in loans distributed to 30 million borrowers, and Andhra Pradesh accounted for a third of the total business.

As a result of the new laws, debt repayments fell drastically and the entire sector is now facing a massive consolidation, and many lenders have been forced to shut up shop.

Microinsurance is different from microfinance as this provides a safety net to prevent people from falling back into poverty.

The International Labour Organisation describes microinsurance as a mechanism to protect poor people against risk (accident, illness, death in the family, natural disasters etc) in exchange for insurance premium payments tailored to their needs, income and level of risk.

If a person earns $5 a day, making $150 a month, and a typical insurance product is under $4 a month, that person is able to, with that very limited amount of capital, free their family up substantially.

Having that extra protection means that instead of sending the children to work to save for a rainy day, they can send them to school.

Capital injection

Leapfrog is a $135m US-based impact investment fund that was set up to invest in companies that underwrite or distribute insurance.

The fund is backed by billionaire George Soros and e-bay founder Pierre Omidyar, as well as a consortium of banks, pension funds and reinsurers.

Leapfrog says that it is a big myth that because people have low incomes they are unable to pay for meaningful products.

"We are looking at the next billion consumers," said Andrew Kuper, co-founder of Leapfrog.

"The consumers who are rising out of poverty and into the middle-classes… aspiring, seeking to acquire financial services and other services that allow them to go on their journey in a more effective way."

He thinks businesses that serve that segment are going to have a massive competitive advantage.

Continue reading the main story

The ability with a very small percent of your income to totally reshape your microeconomic picture is a huge opportunity”

End Quote Andrew Kuper co-founder, Leapfrog "The ability with a very small percent of your income - less than 4% - to totally reshape your microeconomic picture and the daily choices that you and your family make is a huge opportunity.

"What isn't happening is companies getting to grips with the notion that you can serve that population, and we find that it is a very narrow slice of companies. Fortunately we are engaging with them."

More than 85% of Shriram Group's customers are first-time buyers of any financial product. It is the first provider to more than 98% of its customers. The group hopes that the capital injection from Leapfrog will benefit 10 million people in India.

G S Sundararajan, managing director of Shriram Capital, says his company is targeting people with an average annual income of $2,500.

"We already offer financing and investment services to the lower-income masses across India. Now, we plan to increase it even further. We'll be using Leapfrog's expertise to design new insurance products that are more effective for our existing consumers."

Huge potential

Microinsurance is not a new concept in India. The country was one of the first to introduce microinsurance regulation.

The Insurance Regulatory and Development Authority (IRDA) made it mandatory for all formal insurance companies to extend their activities to rural and social sectors as early as 2002.

But microinsurance companies face a huge challenge in connecting with customers. Many companies have been trying creative ideas - for example, the Shriram group is using its transport finance wing to connect with truck drivers and sell products to them.

India's biggest fertiliser company, IFFCO, provides free insurance cover to farmers along with each bag of fertiliser purchased. It has a joint venture with Tokio Marine and Nichido Fire Group, the largest listed insurance group in Japan.

It also provides a cattle insurance policy that covers the death of the animal due to accident, disease, surgical operations, strike, riots and even acts of terrorism or an earthquake.

A loan increased Virender's profits by 50%, by helping to pay for a new truck

The potential is huge. A study by the United Nations Development Programme (UNDP) in 2007 reported that up to 90% of the Indian population, or 950 million people, were excluded from the insurance market and represented a powerful "missing market".

But the private sector is risk-averse when it comes to investing in such people.

And just government resources and charitable donations cannot address the enormous social problems the country faces. Impact investments offer an alternative.

Reducing poverty

Recognising this growing segment, the biggest newspaper in the country, The Times of India, in association with J P Morgan, has announced awards for social impact.

Rahul Kansal is the organiser of the awards and he says that there are opportunities beyond just microinsurance for social impact in the country.

He says that large scale private capital can be channelled to public works.

"Increasingly we are seeing that in a country like India, there are avenues like healthcare, education, civic areas like waste management which need attention."

"The government cannot cope with the size of the problem. This is where organisations both for profit and non-profit can step in."

He thinks this large-scale neglect and need could be the next big investment opportunity.

A loan helped finance a new truck for Virender Kumar, increasing his profits by more than 50%. But he has also got life insurance and accident cover that came bundled with his truck financing, to protect his family.

It is people like him that are benefiting most by impact investments. Reducing poverty requires not just the generation of income among the poor, but also the protection of these incomes.

They are people who are making the transition from the informal to the formal economy - and bringing financial products to them gives them a chance to be included in the country's rapidly growing economy.

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Flat summer sales at Thomas Cook

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29 September 2011 Last updated at 07:34 GMT Thomas Cook has issued three profit warnings over the past year in the face of tough trading conditions Thomas Cook has said bookings by its UK customers were "flat" during the summer holiday season, but that its full-year profits should be "broadly in line with market expectations".

In a trading statement, the travel company also said it was continuing to be affected by the political turmoil in the Middle East and North Africa.

It said this had particularly affected its French business.

However, its sales in northern Europe, including Germany, were up strongly.

Its summer bookings for this region - which also includes the Scandinavian countries - were 13% higher than a year earlier.

Bookings in France, Belgium, the Netherlands and Eastern Europe were down 1% from a year ago; and there was no change in the UK.

Boss departure

Thomas Cook's forward bookings for the 2011-12 winter season are currently mixed when compared with the same time last year.

They are down 7% in the UK, and 16% lower in France, Belgium, the Netherlands and Eastern Europe, but up 6% in Germany and Scandinavia.

Thomas Cook said it was continuing efforts to boost its profitability.

The company also said it would not be making any dividend payments. It is instead focusing on paying down its debts of around ￡900m.

Former chief executive Manny Fontenla-Novoa left in August, followed just over a week later by the head of its UK retail division, Ian Derbyshire.

They departed the company after it had issued its third profit warning in a year.

Thomas Cook is now continuing with a strategic review of the business.

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VIDEO: Mid-East unrest over cheap housing

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Smart jeans: A cause for concern?

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22 September 2011 Last updated at 23:06 GMT By Katia Moskvitch Science and technology reporter, BBC News More and more objects are getting on the web What if those new jeans you've just bought start tweeting about your location as you cross London Bridge?

It sounds far-fetched, but it's possible - if one of your garments is equipped with a tiny radio-frequency identification device (RFID), your location could be revealed without you knowing about it.

RFIDs are chips that use radio waves to send data to a reader - which in turn can be connected to the web.

This technology is just one of the current ways of allowing physical objects to go online - a concept dubbed the "internet of things", which industry insiders have shortened to IoT.

This is when not only your PC, tablet and smartphone can connect to the web, but also your car, your home, your baseball cap and even the sheep and cows on a farm.

And as we switch from IPv4 towards IPv6, which will support some 340 trillion trillion trillion addresses, more and more objects will jump into the web.

Smart buildings and intelligent cars with assigned IP addresses are already making cities smarter - and soon enough, the entire planet may follow.

"A typical city of the future in a full IoT situation could be a matrix-like place with smart cameras everywhere, detectors and non-invasive neurosensors scanning your brain for over-activity in every street," says Rob van Kranenburg, a member of the European Commission's IoT expert group.

In Italy, a group of elderly people have had sensors placed at their homes for remote monitoring

This vision might still be years off, but one by one, "smarter" cities are beginning to crop up around our landscape.

Endless opportunities

IoT advocates claim that overall interconnectivity would allow us to locate and monitor everything, everywhere and at any time.

"Imagine a smart building where a manager can know how many people are inside just by which rooms are reflecting motion - for instance, via motion-sensitive lights," says Constantine Valhouli from the Hammersmith Group, a strategy consulting firm.

"This could help save lives in an emergency."

Continue reading the main story

The ethical worries are manifold... which principles should govern the deployment of the IoT?”

End Quote Gerald Santucci European Commission But as more objects leak into the digital world, the fine line that separates the benefits of increasingly smart technology and possible privacy concerns becomes really blurred.

"The IoT challenge is likely to grow both in scale and complexity as seven billion humans are expected to coexist with 70 billion machines and perhaps 70,000 billion 'smart things', with numbers infiltrating the last redoubts of personal life," says Gerald Santucci, head of the networked enterprise and RFID unit at the European Commission.

"In such a new context, the ethical worries are manifold: to what extent can surveillance of people be accepted? Which principles should govern the deployment of the IoT?"

Talking shirts

Peter Hustinx, European data protection supervisor, says that sometimes firms tend to overlook the importance of personal data.

"In much of the monitoring, tracking and tracing [devices] which are embedded in these facilities, there's privacy relevance, and it will have to be compliant with the new European Commission Framework," he says.

Toyota Friend lets cars communicate with the drivers on a private social network

The Framework was signed by the European Commission in April 2011, and its main purpose is to safeguard consumer privacy and assure the public that web-connected objects are safe for the industry to develop - and for people to consume.

Take clothing, for instance.

A number of stores, among them major retail chain Wal-Mart, have started using RFID tags to enable employees to quickly check the stock by scanning items on shelves, and to track products more easily from manufacturing to the final delivery.

But privacy advocates are concerned that the same RFID reader could also read the data on, say, a consumer's passport or driving licence equipped with the same kind of chip - and it could lead to identity theft.

And although the tag is supposed to be removed at the checkout, if a consumer leaves the shop with the chip still attached, the item could be tracked on the street.

Once the tag is thrown away, it can still be scanned, enabling someone to get an idea of your shopping habits.

Hackers also know how to decode RFID tags.

And because the information is transmitted via radio waves, one can simply listen in.

That's exactly what happened when the Soviets presented a US ambassador during the Cold War with a wooden carving of the Great Seal, bugged with an RFID predecessor - a device called The Thing.

The Americans failed to find it - just like modern RFID tags, it only worked when enabled by a radio wave - which led to the Soviets eavesdropping on the conversations at the ambassador's office by beaming radio signals to it.

Going smart

Another way to make things smarter is by embedding sensors in them and sending data online via a wireless low-power technology called Zigbee.

Sensors "tell" the driver where free parking spaces are

IBM is doing just that - its project that remotely monitors the environment that could affect the health of elderly people in Bolzano, Italy, extended caretaker supervision with sensors embedded all over the patients' homes, providing round-the-clock peace of mind not only for the patients but for their families too.

The sensors read the levels of carbon monoxide, carbon dioxide, methane, temperature and smoke, and send the information to the caretakers' PCs and mobile devices.

To protect the patients' personal data, IBM uses encryption, says Bharat Bedi from the firm's lab in Hursley, UK.

"And we've also added some anonymous features to the system - when you log on to the dashboard, you don't see the person's name or their exact address, they've been given almost like code names which only mean something to the council workers and the relatives," he says.

A Spanish company Worldsensing has come up with a similar sensor-based technology.

With help of a special app on your smartphone, drivers can receive data from sensors installed in parking spaces, telling them where the closest free spot is.

Continue reading the main story

Your mobile phone operator and your bank know much more about your life than your wife or husband does”

End Quote Mischa Dohler Worldsensing "So that no one tries to sneak into your system and steal personal data - such as where you parked and how long you stayed - we use encryption, and also apply a decoupling technique that separates personal information from purely technical data," says the firm's chief technical officer, Mischa Dohler.

Chatting cars

Cars are rapidly becoming smart, too.

Toyota, for instance, has always been one of the frontrunners in telematics - and now it has decided to team up with Salesforce.com to allow cars to chat to their drivers on a private social network.

The venture, called Toyota Friend, will first work only for hybrid and electric cars. So if the battery is almost flat, for instance, the driver would receive a short message via Bluetooth on his or her smartphone.

In a demonstration at a Tokyo showroom, one of the Toyota owners showed such a message: "The charge will be completed by 2:15 am. Is that OK? See you tomorrow."

Stores all over the globe are tagging their items with RFID chips

The car will also be able to update its - and hence the driver's - location.

And it is here that privacy issues may come into play. What if the location is revealed automatically, for instance if the owner forgets to modify the privacy settings, just like on Facebook?

But Salesforce.com's Tim Barker says that privacy should not be a concern.

"Social Enterprise applications provide customers an opt-in to allow them to share information such as their location and 'likes', to enhance their experience as a customer and the information that they receive," he says.

It is hard to predict how well all these issues will be addressed once the entire planet gets on the web.

But as Mischa Dohler from Worldsensing puts it, in our already digital and high-tech society, the IoT privacy issues have to be taken with a little pinch of salt.

"It's just like with your phone and a credit card - your mobile phone operator and your bank know much more about your life than your wife or husband does," he says.

"And this data is likely to be more critical than the type of jeans you wear or for how long you've been parked."

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Trade watchdog link to loan firm

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1 October 2011 Last updated at 23:40 GMT By Adrian Goldberg Presenter, 5 live Investigates Trading Standards is taking consultancy payments from a firm which is also the subject of customer complaints.

West Yorkshire Trading Standards (WYTS) received payments from online loans broker SGE Loans in exchange for regulatory advice.

But some customers claim that SGE Loans has debited their bank accounts without consent - a claim SGE Loans denies.

WYTS says such partnerships are necessary because of budget cuts but its integrity remains unaffected.

WYTS says it has received over ￡88,000 ($137,500) since April 2011 from a total of 47 companies with which it has similar partnerships.

It confirmed that it only started charging SGE Loans for its detailed advice in that month, but would not reveal the precise sum it had received from SGE Loans, citing commercial confidentiality.

However, it did reveal that it had investigated a number of complaints made against the company.

Unauthorised payments

One customer who contacted the 5 live Investigates programme, Lianne Gray, says she rang SGE Loans in August of this year.

Customers say SGE took unauthorised payments from their bank accounts. SGE Loans denies this.

She says she was reassured that no money would be taken out of her account if she decided not to take out a loan.

"I then discovered two days later that the company had taken ￡79.99 out of my bank, which I could not afford to lose because I'm on benefits," she said.

"I am absolutely disgusted with how I have been treated."

5 live Investigates contacted SGE Loans on Ms Gray's behalf and her money was subsequently refunded five weeks after it had been debited.

Continue reading the main story

SGE Loans does not debit money from customers' accounts without authorisation”

End Quote Sally Hill Chief executive, SGE Loans David Dutfield had a similar experience when he called SGE Loans in June.

"I was told on the phone that no money would leave my account if my loan was below ￡200, which is what I was after.

"Yet when I came off the phone I found that ￡69.99 was taken from my account."

Following inquires made by the BBC, Mr Dutfield has also been refunded following more than three months of dispute.

West Yorkshire Trading Standards confirmed, in several instances, recordings of customer calls revealed that some SGE Loans staff had not fully explained the terms of its business and did not warn customers they were liable to pay an upfront fee, which could be refunded after a 14 day cooling-off period.

WYTS says SGE Loans subsequently took disciplinary action and retrained staff who made such mistakes.

SGE Loans chief executive Sally Hill told the BBC that SGE Loans did not debit money from customers' accounts without authorisation.

In a written response, she said that SGE Loans had never refused to refund money to a customer who had cancelled within the 14 day cooling-off period, if the company's service had not been used.

'Error of judgement'

Leeds-based SGE Loans has what is called a Primary Authority Partnership with West Yorkshire Trading Standards, which means that the branch deals with complaints made against the company from across the UK.

The company also has a commercial contract with WYTS, paying for advice about legal and regulatory issues.

During the course of its investigation, 5 live Investigates discovered SGE Loans featured a West Yorkshire Trading Standards logo on its website.

When asked why the logo was being used by the company, WYTS said: "Initially, and possibly naively, this service [WYTS] assumed that this would be taken for what it was - a statement of fact that we and the business had a Primary Authority partnership.

Continue reading the main story

Trading Standards should distance themselves from all companies and it would be better for all of us if all businesses regarded Trading Standards as a threat and something to be worried about”

End Quote Mark Gander Consumer Action Group "However, we now recognise that people are assuming that this is an endorsement of the business."

As a result, WYTS has asked SGE Loans to remove the logo from its company website.

When asked if it felt compromised by taking payment from firms it was also receiving complaints about, WYTS told the BBC:

"We refute any allegation that being in a Primary Authority Partnership with any business means this service does not undertake its duties, including to deal with complaints impartially, in anything but a professional manner."

WYTS also says that its relationship with SGE and other businesses helps them to understand the legal framework within which they operate, and "get it right", thus saving taxpayers money in the long run.

Marc Gander, from Consumer Action Group, told 5 live Investigates that it was inappropriate for a regulatory body to be funded in this way and said it was "a grave error of judgement".

"Trading Standards should distance themselves from all companies and it would be better for all of us if all businesses regarded Trading Standards as a threat and something to be worried about," he said.

WYTS, in common with Trading Standards offices around the UK, is under severe financial pressures as it faces budget cuts.

Planned local government spending on Trading Standards across England has been reduced overall by 11.4% in 2011/12, and in Wales by 7.4%.

WYTS says it faces budget cuts of 22% and this has has made it a necessity to charge companies such as SGE Loans for its regulatory advice.

Some 443 of 538 Trading Standards departments responded to a survey by 5 live Investigates - 18 said they received income from private companies in exchange for regulation and compliance advice.

You can hear the full report on 5 live Investigates on Sunday, 2 October at 21:00 BST on BBC Radio 5 live.

You can listen again on the BBC iPlayer or by downloading the 5 live Investigates podcast.

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