ERC Chart: House Price Growth

UK House Price Growth since the Financial Crash

This chart shows that London house price growth over the last decade has far outstripped all other regions in the UK, with areas of staggering growth such as Hackney, which rose 120%. At 78% city-wide, in the last decade London house price growth stands at just shy of twice the level of the next highest growth regions and in stark contrast to deprived areas such as Hartlepool which fell by 24%.
In 2007, the average UK house price was £181k with average new mortgage rates at 5.88%. By 2017 the average new mortgage rate was 2.04% and the average UK house price was £210k (or £292k in 2007 rising to £478k in 2017 in London). First-time buyers in 2007 needed to earn on average £34k annually whereas in 2017 they require an average income of £40k (for London these figures are £52k and £64k respectively).
What does the chart show?
The bars display the percentage change in house prices by region (excluding Northern Ireland) in the decade between March 2007 and March 2017.
Why is the chart interesting?
Exorbitant London house prices have also supported dramatic rises of approximately 50% in certain commuter-belt zones which were previously very low value such as Harlow, Slough and Stevenage. There continue to be great disparities within geographical areas. For example, Edinburgh house prices experienced nearly 30% growth which is almost double the Scotland average. Similarly, Aberdeen house prices grew above average for Scotland, but were sensitive to oil price fluctuation, growing 44% until March 2015, but then falling 9% in the two subsequent years. Affordability in the south of the country is an ever-increasing issue, with urban centres such as Oxford, Cambridge and Brighton experiencing high growth in the last decade. With interest rates expected to rise, the question of affordability will become more pressing.

ERC Chart: Top 6 Polluters

Top 6 Polluters’ Emissions v.s. GDP

The set of graphs generally indicates that developed countries are beginning to reduce their emissions, whereas India and China are seeing their emissions rise, as they undertake vast infrastructure projects and continue to lift sizeable populations out of poverty. For example emissions in China and India have risen between 2005 and 2015 by 72.3% and 93.3% respectively, although the rise in Chinese emissions has begun to ease from 2014. Conversely the EU in the same period reduced its CO2 emissions by 17.7% from 4.2tn tonnes in 2005 to 3.46tn tonnes in 2015 (for the USA and Japan this percentage drop has been 12.13% and 3.17% respectively, with Russian emissions rising just 1.43%). GDP has steadily risen in India and China. China’s rapidly increasing GDP is evidenced by a rise of approximately $8trn in the period from 2005 to 2016. GDP is relatively flat in Japanese and Russian economies due to a range of factors. Russia’s economy has suffered due to sanctions imposed during the Ukraine crisis but more severely by the dramatic drop in oil price. Oil revenue constituted around 68% of all Russian exports and around 16% of its GDP in 2014. Japanese growth has always been historically low and their emissions follow this trend too. The stability of emissions may be due to the country’s small land mass and population, which once necessary infrastructure has been established, is unable to expand further.
What does the chart show?
These charts show the amount of CO2 emissions in thousands of kilo tonnes produced each year, displayed by the red bars and plotted against the right hand axis. Each entity’s annual Gross Domestic Product is shown in billions of US dollars at current prices and is displayed by the blue line measured against the left hand axis. In separate charts are the data for each of the world’s biggest 6 polluting entities which in descending order are China, USA, EU, India, Russia followed by Japan. There is some difficulty in the collection of emissions data and this data was only collected on an annual basis from 2013 giving rise to the gaps between certain years.
Why is the chart interesting?
While it is important that this country data is now being collected annually, it is not really possible for conclusions to be drawn about how and to what extent governmental or consumer attitudes to the environment are undergoing change. This is due to the globalisation of production and manufacturing, as well as the variation between governments in their environmental policy for the future. An example of this is the Chinese government’s commitment to spend $361bn before 2020 on the development of renewable energy sources. Additionally, as net exporters, a significant proportion of Chinese and Indian emissions will be attributable to the production of goods to meet consumer demand in other countries. Similarly, many emissions-intensive processes, which are actually to the benefit of developed nations, often occur elsewhere. The production of soy and other grain for animal feed used in the rearing of animals typifies this as the animals are disproportionately consumed, and indeed wasted, in more developed countries.

ERC Chart: Composition of Global Debt

Change in Composition of Global Debt
This chart shows a positive trend in the growth of global debt, growing from $87 trillion in year 2000 to $199 trillion in 2014. Household debt rose quickly from $18 trillion in 2000 to $33 trillion by 2007, although the pace slowed by 2014 when it totaled $40 trillion, likely a product of the recession. In fact, 80% of countries have increasing household debt and household debt-to-GDP ratios. Similarly, financial debt almost doubled from $20 to $37 trillion between 2000 to 2007, and the rise decelerated by 2014 when it reached $45 trillion. The converse trend is true of both corporate and government debt which have both more than doubled but with a steeper rise in the latter 7 years, from $26 to $56 trillion and from $22 to $58 trillion respectively. This is likely attributable to governmental decisions following the global financial crisis; specifically government bail outs of banks, fiscal stimulus packages and expansionary monetary policy all contributing to rapid growth of government debt.
What does the chart show?
The chart shows changes in the global level of debt from years 2000-2014, measured in trillions of US dollars at 2013 exchange rates. The blue, orange, grey and yellow bars each represent household, financial, government and corporate debt levels respectively, while the point on the graph shows the total debt. Total debt-to-GDP ratio includes all forms of debt, however there is variation between countries’ government debt levels. To illustrate; in 2014 Japan had a debt-to-GDP ratio of 400% compared to Argentina’s which was 33%. However, the chart shows that government debt has been increasing vastly as a proportion of total global debt. This is reflected in the fact that in 2007, government debt constituted approximately 1/5 of total global debt compared to 1/3 of total global debt in 2014.
Why is the chart interesting?
Two  of the clearest examples of dramatically increased government debt are the US and UK; US national debt increased from 61% to 102% of GDP between 2007 and 2014, while the UK’s national debt in 2007 was at 42% and rose to 88.1% in 2014. Over the last decade, periods of quantitative easing with interest rates persistently low and close to zero has meant easy access to money incentivising corporates to take on debt to fund investment. This in turn led to governments shouldering the burden of not only increased spending on QE but also diminished receipts as a result of increased corporate debt levels. Although this has achieved some of its target in stimulating demand and growth, it has increased current global debt to unsustainable levels.
The IMF reported in 2015 that two-thirds of world global debt comprised private sector debt. They went on to warn against this, with their Director of Fiscal Affairs stating that “excessive private debt is a major headwind against the global recovery and a risk to financial stability… rapid increases in private debt often end up in financial crises [which are] are longer and deeper than normal recessions.”. The report states that, from 2007 up to 2014, ‘no major economies and only five developing economies have reduced the ratio of debt to GDP’. This stands in contrast to the 14 countries that increased their debt-to-GDP ratios of by more than 50%.
Though central bankers may want to scale back the use of QE and raise interest rates to address rising inflation, they remain wary of the potential negative consequences of poorly timing these measures. In the face of central banks struggling to balance these competing objectives, the IMF calls for governments to instead structurally reform their monetary and fiscal policy to support consumer demand and boost economic efficiency and growth. The IMF advocates targeted debt restructuring and a focus on improving bank balance sheets to minimise the impact of economic deleveraging.

ERC Chart: Market Cap vs Brand Value

Market Cap vs Brand Value
Change in Market Capitalisation vs Brand Value

This chart shows the performance of a number of brands detailing the changes in both their stock market capitalisation and brand value over the past year. The results are mixed, with positive increases in brand values not always corresponding to positive increases in a company’s market capitalisation. The volatility of market capitalisation figures tends to be larger than that of brand perception, as consumer perception is likely to be less elastic and not rooted companies’ financial performance, while market capitalisation based on stock prices, is far more exposed to economic forces.

Tech companies’ success is particularly evident, with the flagship brands shown here averaging a 33% increase in their market capitalisations and a 16% increase in their brand values. The lowest performance on both fronts was shown by more traditional telecommunications brands, who together averaged a 9% decrease in their market capitalisations and a 1.5% decrease in their brand value. This is due in part to the rise of free-to-use applications such as Skype and Whatsapp, companies owned by Skype and Facebook respectively. Luxury car manufacturers such as Mercedes Benz and BMW have enjoyed increased market values in the past year, although some of this may be related to the increase in availability of car finance packages across the US and Europe, which incentivise consumers both to opt for higher value models and to renew them more often.

What does the chart show?
The chart shows the percent change between 2016 and 2017 of a selection of the biggest global brands in market capitalisation and the consumer perception of brand value. The brand value data originates from Brand Z’s annual Top 100 Most Valuable Global Brands, determined by calculating each company’s financial value (revenues and profitability), and then multiplying this by the brand’s ‘contribution score’, a measure obtained through the survey of 3.1m consumers in 51 countries. Market capitalisation figures are of each brand’s parent company, taken on July 12 of 2016 and 2017.
Why is the chart interesting?
Reflected in this chart are some of the major current trends in the world economy: the rise of tech is evident, with companies such as Facebook and Apple dominating the right side of the chart. Traditional telecommunication companies are faring much worse. With decreasing stock prices and brand perception, companies such as Vodafone and Verizon are increasingly feeling pressure to diversify in order to remain competitive. The decline of bricks-and-mortar retail stores is also evident with companies such as Walmart and Costco. Once considered giants in what was the biggest consumer market, they now face declining valuation figures, low to negative growth in consumer perceptions and are investing heavily into their online offerings in response. In their place online retailers such as Amazon and Alibaba have emerged, reflecting the shift in consumer habits towards online shopping. Interestingly, Alibaba, the company with the largest increase in its market capitalisation, saw minimal increase in brand value. However Amazon, whose market value increased by only half of Alibaba’s gain, experienced twice the growth in brand value as Alibaba.  This may be reflective of Aliibaba’s predominantly far-eastern consumer base and the relative high proportion of western consumers polled. Indeed Alibaba’s low market share in nations other than China is illustrated by the generation of only 10% of their revenue from international commerce in 2017 so far. In their operations outside China, Alibaba often serve as an intermediary, working with other platform retailers such as Amazon and eBay to connect buyers outside China with sellers inside. Although these activities obviously increase their profits, it obscures the brand from western consumers.

ERC Chart: Output v.s. Gross Fixed Capital

Productivity Output v.s. Gross Fixed Capital Formation
This chart shows the relationship between the level of gross fixed capital formation (GFCF) and the productivity of the economy. Unsurprisingly, it is higher before the financial crash, at just over 18% of GDP in 2007. The global financial crash caused a dramatic drop, beginning in 2008, and falling over 2.5% of total GDP to just over 15.5% in 2009. GFCF levels then rise in a relatively stable manner between 2009 and 2015, however do not recover to pre-crisis levels. The slow recovery to 2015 is followed by a decline in 2016, likely attributable to the outcome of the UK referendum on EU membership, an event that has caused investors across the board to hold off further capital expenditure.
Productivity, which comprises mainly services (79%) rather than goods, is clearly correlated to GFCF, however the former diverges from GFCF in 2016. This may be fuelled by previous investment in fixed capital but also sterling devaluation post-referendum will also have played a role; specifically, that the value as opposed to the volume of output may have risen.
What does the chart show?
The level of GFCF is a measure of all UK firms’ investment in fixed capital assets, less any assets of which they have disposed. The figure is annual, expressed as a percentage of total GDP, and is shown with black markers measured along the right hand axis. Productivity is shown as quarterly output per hour, seasonally adjusted and displayed by the red line measured against the right hand axis.
Why is the chart interesting?
Although productivity had recovered to pre-crisis levels by 2015, there has been much-publicised concern over UK productivity levels in general with UK workers accused of producing one fifth less in an hour’s work than their G20 counterparts. Although GDP has grown significantly since its pre-recession peak, this growth has been fuelled by an expansion of the workforce, as opposed to any greater efficiency or streamlined business practices. Evidence of this can be seen in relatively flat GDP per capita figures. Measuring productivity is a vast and complex task, in which overall figures are liable to mask both success stories and inefficiencies. The manufacturing sector is highly variable and the difficulty in gauging productivity in complex service workplaces, such as hospitals or job centres, is immense.

Selecting Fund Manager of the Year

Can you explain how to select the top Fund Manager of the Year #FMYA2017 looking at historic performance alone?

3 year cumulative performance


chart (5)

The chart below shows how the FYMA shortlisted UK Equity Income fund managers would be impacted by changes in UK Inflation and UK Default Spreads.


Screen Shot 2017-07-03 at 22.55.41


Your clients want to understand the drivers behind the performance and likely sustainability through a market cycle. Can you explain this?

PureGroup provides new solutions to old challenges, namely how to differentiate your message.

About PureGroup
Traditional methods of broad classification; value/growth, large/small cap and momentum are no longer sufficient to differentiate your fund from the competition. Focusing on leading macro-economic factors, we provide Asset Managers with data to construct messages which can engage your clients.


ERC Chart: Vacancies v.s. Employment Rate

Vacancies v.s. Employment Rate
This chart shows that the overall employment rate has been tracked by the number of available jobs until the financial crash. Following the financial crash the number of vacancies dropped from 704,000 in Q1 2008 to 432 thousand in Q2 2009, and took until the end of 2014 to recover to the pre-crisis level. The employment rate however took longer to reach its recession low point, falling from 73% in Q1 2008 to 70.1% in Q3 2011 although it recovered more swiftly to 73% in Q3 2014. Overall the employment rate has risen dramatically since 2012, although some of this rise is attributable to ongoing changes in the state pension age for women, which has caused fewer women to retire between the ages of 60 and 65. For the latest time period shown, the employment rate was 74.8%, the joint highest since comparable records began in 1971.
What does the chart show?
The chart shows the overall employment rate for adults of both genders between 16-64 years of age in percentage form measured against right hand axis. Measured against the left hand axis is the estimated real number of vacancies available in the UK job market in thousands, which is defined as roles for which employers are actively recruiting outside their organisation. The number of vacancies however does exclude agriculture, fishing and forestry sectors. Both data sets are seasonally adjusted.
Why is the chart interesting?
According to many industry bodies, a crucial post-Brexit challenge will be shortages in both skilled and unskilled labour, with a recent survey of over 1,000 employers by the Chartered Institute for Personnel and Development finding that employers were already reporting labour and skills shortages in a range of sectors including manufacturing, healthcare and hospitality. Indeed the surge in vacancies shown in the above chart does not include vacancies in agriculture, an industry with a  particularly high proportion of foreign and EU workers. The agriculture industry in the UK requires c.80 thousand seasonal workers and although industry labour providers reported that 100% of demand was met in Q1 2016, by the third quarter of 2016 47% of providers were reporting shortages. As many commentators have warned, the UK may see food price inflation as a result of both these labour shortages and the potential increase in import costs following Brexit. With so many vacancies on offer there may also be an uptick in individuals working for multiple employers. One in four employers polled by the CIPD had reported evidence from their workforce of EU nationals considering leaving the UK as a result of the referendum, specifically that 43% of education employers and 49% of healthcare bosses think that EU workers are considering leaving.

ERC Chart: Asset Class Performance

Historical Asset Class Performance
This chart shows a snapshot of the performance of different asset classes: UK commercial property, global government bonds and global equity since 2003. Overall, commercial property has yielded the highest percentage return on investment for half the years shown. Equity has yielded the highest returns in 5 out of the 14 years shown, displaying its sensitivity to the overall economic climate. This sensitivity can be seen following the 2008 financial crash, when equity suffered a fairly catastrophic drop to -39.2% returns, some 15% worse than property, the next worse-performing class. This was followed by a steep climb to 30% returns in equity in 2009 and a rapid fall to -6% in 2011; the effects of the double dip recession. Gilts have only been the most profitable asset class for 2 of the years shown, specifically 2007 and 2008, the years of the financial crash, reflecting their traditional reputation as a relatively low-risk, reliable-return investment in the falling interest rate environment. However, government bonds have shown negative returns since 2013, something that Baroness Altmann, in a recent speech to the ERC, attributed to the continued use of quantitative easing. This, she claimed, had turned gilts ‘from risk-free returns into return-free risk’.
What does the chart show?
The chart shows the percentage return on investment in three asset classes from the years 2003 – 2016: global equity, global government bonds and commercial property in the UK. The grey line represents commercial property in the UK; the orange line represents global government bonds and the blue line represents global equity. The return on investment ranges from -39.2% to 30%.
Why is the chart interesting?
Global equity returns have been diminishing since 2013, which is attributable to a range of factors, not least widespread geopolitical uncertainty. The drop in oil price, which has been disastrous for oil companies as well as the effect of low interest rates are two further drivers in this downward trend. All commodities suffered in the global crash, but prices have begun to climb in 2016, following commitments from the US and Chinese governments toward large-scale infrastructure projects.
Returns from investment in commercial property in the UK climbed from 2003 to 2004, and remained above 18% until the financial crash. Although equity return recovered swiftly at the start of 2009, this increase was considerably more cautious in commercial property. Indeed, it was only in 2014 that returns on commercial property investment recovered to pre-crisis levels.
Compared to asset returns in cash, commodities and credit, the three assets compared in the graph yielded the highest returns over the last decade. An investment of £100 in equity in 2003 would have seen a return of £307, the same into property would have yielded £271 and into government bonds, £168. With volatility indices at an all-time low, the chart shows the increasing merit of a diversified portfolio in the years since the crash.

ERC Chart: Corporate Tax Rates

Corporate Tax Rates v.s. Receipts
The chart shows that, despite consistent reductions in the taxation rate, yearly receipts of corporation tax have remained relatively stable over the last decade. The exception to this is the two years following the 2008 global crash where revenues dipped to a decade low of £29.6m. Receipts have risen in 2016/17 exceeding for the first time pre-crisis levels, rising over £47m to £55.1m where they are projected to stay. This is likely due to the drop in sterling value following the Brexit referendum and the related reduction in export costs. Formerly, revenue collected from offshore corporation tax constituted a high proportion of receipts overall averaging at around 15% of the total in the first six years shown here. However offshore receipts are now dwindling, with the reduction in revenue of likely related to the dramatic fall in oil prices, which has impacted North Sea oil and gas companies’ profits considerably.
What does the chart show?
This chart uses figures from the government’s Public Sector Finance report to display the absolute receipt of tax revenue from private corporations. This is split into revenue generated from taxation of domestic activities, shown in blue bars, and revenue collected from offshore activities shown in orange. The data is yearly in millions of pounds, not seasonally adjusted and measured against the left hand axis. Overlayed and displayed by the yellow line is the corporation tax rate, which is measured in percent against the right hand axis. The figures for the financial years beginning in 2017 are OBR projections that are based on the current rate of corporation tax and do not reflect any of the parties’ planned changes.
Why is the chart interesting?
One of the policy areas in which the two main political parties diverge significantly is corporation tax rates, with Labour pledging to raise the rate 26% and the Conservatives promising a further cut to 17% in line with their policy throughout the last two parliaments. UK corporation tax is currently the lowest of the G7 and among the lowest in OECD countries. Labour’s proposed rise would maintain the UK’s position in the G7 but take the UK 2% above the OECD average corporation tax rate. Should the tax rate be raised there are fears it would result in a reduction in private investment, and therefor economic growth. Business investment in the UK has been subdued since the 2008 recession and indeed dropped in 2016, despite the seven cuts in tax rate in the last decade. Following the Brexit referendum and our potential departure from the single market, there is apprehension that companies will be compelled to leave the UK altogether, leading some to believe that they must be incentivised by further tax reductions to stay. However critics of this perspective point to numerous other developed nations, for example Germany and the US, whose corporate tax rates are far higher and whose economies enjoy growth at similar or higher rates to the UK.

ERC Chart: Support for Nationalisation

Public Support for Nationalisation
by Sector and Age Group
With the topic of nationalisation forming a significant part of current debate in the run up to the general election, a survey that gathered information regarding support for nationalisation has formed the basis of this week’s chart. Recent figures have shown a surge in the registration of around 2 million voters aged 18-24 year olds, so this age group’s views are particularly interesting. When all displayed sectors are averaged, 57.3% of the sample wish the services shown to be nationalised or to remain in public control. Although opinion polls cannot be treated as a source of conclusive data, they may highlight slightly more contentious sectors by certain age groups based on their own experiences and needs.
What does the chart show?
This chart uses figures from the results of an opinion poll carried out by YouGov on the 17th and 18th May 2017 with just under 2000 representative respondents. They gathered information regarding support for nationalisation by age group. Each bar represents the percentage of the given age group who support the public management of each sector, which are detailed along the horizontal axis. The blue bars represent 18-24 year olds, the youngest voters; the red bars represent 25-49 year olds who are most likely to be in employment; the green bars represent 50-64 year olds and the purple bars, those aged 65+, probable retirees and pensioners who nonetheless have the highest voter turnout.
Why is the chart interesting?
As has been well established over many electoral cycles, public support for the NHS to remain in full public control is very high (well over 80%), making policy changes in this area a politically hazardous move for any party. The area with the least support for nationalisation is banking, and may be due to the electorate’s distaste for public money flowing into the banking system post-bailout. The transport sector, broken down here into separate sections for rail and bus companies, sees high support for nationalisation. Perhaps this is in response to particularly poor service in recent years and no doubt has inspired the Labour pledge to nationalise the rail service. Support for nationalised rail services is highest among the youngest voters, more likely to be supporters of the Labour party. High fuel prices and a lowered appetite for car ownership may also play into the attitudes of the young towards increased government control of the rail and bus network. Older people are more likely to support the nationalisation of energy companies, maybe due to their increased likelihood of suffering from fuel poverty and a belief that, under government control, prices stand a greater chance of coming down.