Hamilton Financial  >  Newsletter  >  Newsletter – Winter 2019



The Hamilton Financial Team

Andrew Hamilton

Andrew Hamilton

Victoria Mann

Victoria Mann

Peter Forrester

Peter Forrester

Ana Castillo

Ana Castillo

The Hamilton Financial Advisory Panel

Alex Hammond-Chambers

Keith Falconer

Charles Heenan

Robert Hunter

Angus Tulloch

Mark Tyndall

Max Ward

Steve Plag

About Hamilton Financial

Hamilton Financial is a firm of private client investment managers and independent financial advisors. We are 100% owned by the directors. We have no financial tie-ups or obligations to third parties. We are proud of our team, our Investment Advisory Board and for our record of:


  • Independence
  • Fee transparency
  • Plain English
  • Sensible financial & tax planning advice
  • Investment performance
  • Competitively priced fees (no VAT)


Dear All,

Welcome to the Winter 2019 edition of News from the Mews. After finishing this edition, I think I understand how real authors feel. For far too long, you can’t think of anything remotely interesting to say; and then before you know it, you are starting to write a novel! I have been helped in this edition by the Hamilton Financial Advisory Panel (see “Minutes of the Hamilton Financial Advisory Panel Meeting” below) and by our new boy, Simon Milne. Simon joined us in November and you will find his embarrassingly polite account of his first month with us below. Here is a summary of the contents:

  • The HF Advisory Panel’s forecast of the General Election result on 12th December 2019.
  • Inheritance Tax (IHT) planning.
  • The Hamilton Financial Investment style.
  • Minutes of Meeting of the HF Advisory Panel on 29th November 2019.
  • An account of my first month with Hamilton Financial by Simon Milne.

Finally, on your next visit, you will find that our office walls are now adorned by some lovely contemporary art works. They have been hung in our premises by our friends David and Jane Frame of the Doubtfire Gallery. They are particularly nice pieces by working Scottish artists, established and collected in the UK and beyond – and are for sale.

Have a lovely Christmas and best wishes from us all,


General Election 12th December 2019 – Forecast

Hamilton Financial Advisory Board Panel’s Forecast of Westminster Seats won in UK & Scotland

The winner of each competition will be the nearest forecast number to actual seats won by the Conservatives & Unionist Party in (1) UK and (2) Scotland. Winners of each competition will win £110 (each panel member put £20 into the hat).

Inheritance Tax (IHT) Planning

A very good friend of mine told a story against himself, the moral of which was, he said, “Never count on an Inheritance”. My friend’s uncle – a widower – owned a beautiful farm. It was an “in hand” working farm and so exempt from IHT. The nephew was also a beneficiary of his uncle’s will. One day, without consulting his nephew, the uncle sold the farm. The £3M proceeds were reinvested into the Stock Market. On learning of the sale, my friend said to his uncle: “You realise, don’t you, that by selling the farm, you’ve just volunteered to HMRC Inheritance Tax of £1.2M.” Back came the priceless reply:
“Yes, but I won’t be here to pay it!”

Not everyone takes such a cavalier approach to IHT, particularly those of us with children. So what follows is a guide to the measures you might legally take to avoid IHT. A little background first.

In 2019, estates broadly worth less £1M will not bear IHT. (This is a generalisation). Above £1M, your executors will pay 40% unless:

  1. You own trading assets – these include investments in forestry.
  2. You own shares in a trading company.
  3. You are a working farmer.
  4. You own companies held on the Alternative Investment Market (AIM) which are deemed by HMRC to be trading companies.

(In all 4 cases above you will need to have owned such assets for 2 years to gain IHT exemption).

  • You leave your estate to your spouse.

I should add that assets which you give away to family and/or friends at least 7 years before death are also ignored for IHT purposes.

UK Smaller Companies held for more than two years

The trouble with inter vivos gifts to anyone other than your spouse is that you often face a Capital Gains Tax (CGT) problem. And of course you lose control of these assets. Which is why we often recommend clients to invest in a portfolio of UK smaller companies – usually listed on the AIM market. The CGT problem can be averted by utilising your ISA portfolio. After 2 years, the portfolio will be exempt from IHT. You are free to continue to enjoy the income for this new portfolio and you keep control. And better still the portfolio can be sold by the beneficiaries of your will without fear of CGT.

Of course you need to find an expert on managing smaller company portfolios (it is essential not to have all your eggs in one basket) and you need to understand that the yield is usually smaller than on a conventional portfolio and that smaller company listed shares are sometimes difficult to trade. But our experience of investing in smaller company portfolios is that they work well. (If you would like to know more: https://hamilton-financial.co.uk/services/inheritance-tax-iht-savings/). Now those of you who employ the investment management services of the larger wealth managers will perhaps be surprised to learn that they do not generally provide this service. This is because they are simply too big; any block purchases or sales of AIM listed companies for their clients will face the problem of illiquidity; illiquidity causes prices – whether buying or selling – to go against you. So what do they recommend instead? Well some of them – St James Place is a prime example – sell instead a scheme known as a Discounted Gift Scheme.

Discounted Gift Schemes

These typically involve putting a large capital sum into a life assurance bond, which is subsequently placed into trust. The client then receives a fixed regular 5% tax free “income” for life – in effect a part repayment of the capital invested. Because the settlor has the inalienable right to a stream of capital payments, HMRC usually accept that for IHT purposes, the value transferred is not the monetary value per se, but a lesser or discounted value. How much less will depend on the health and age of the settlor/transferor. So for example the transfer of £1M may be discounted for IHT purposes to £650K.
The settlor/transferor will have to survive 7 years from the date of the gift before the £650K is fully exempt from IHT but the discount of £350K will effectively receive 100% exemption immediately.
The “income” is genuinely “free” from income tax until the scheme terminates – typically on death – when any increase in value – which includes the 5% withdrawals – is liable to income tax.

I could go on and on and on……………….but you get the picture, I hope!

So why have we never “sold” a Discounted Gift Scheme to a client? The reasons are:

  1. These schemes generate a lot of upfront commission (up to 7%) to the detriment of future investment performance.
  2. Yes, the client gets immediate IHT relief on the discounted element of the capital transferred but then he/she has to wait 7 years before the balance is exempt from IHT.
  3. Loss of access and control – once monies have been transferred to the trust, then control or access to the capital has been lost – the planning is irreversible.
  4. Performance. Given the amount of insurance commission paid out of the policy at the start and given that a 5% “income” yield is on the high side of sensible, pure common sense suggests that the capital value of these bonds will be severely compromised.
  5. They are quite difficult to understand never mind explain!

I am not alone in my dislike of investment bonds, Peter Hargreaves in his autobiography “In for a Penny” says “The problem with investment bonds is that they are produced by life companies and all life companies employ incompetent twerps whose job is to produce lengthy, unusable, incomprehensible application forms. The forms they produce are the biggest deterrent to business imaginable”.


Take good advice before you contemplate active IHT avoidance – you should only deal with people whom you completely trust. Contact us on 0131 315 4888 if you want our advice.

The Hamilton Financial Investment Style

As clients will know, we only use actively managed funds; predominately investment trusts and a few unit trusts. We like our investment trusts for the following reasons:

  • They can borrow;
  • They stay smaller and nimbler;
  • They can invest in illiquid assets (e.g. commercial property and unquoted companies) without fear of having to sell in a period of “fear”;
  • The ongoing fund fees are usually less than their unit trust counterparts;
  • They can take the long view;
  • They avoid the nuisance of “cash drag” (unit trusts need to keep a percentage of their assets in cash to enable them to pay unit holders wanting to encash).
  • Investors sometimes have the opportunity to buy investment trusts at a discount to the net asset value of the underlying assets.

Finally, here is a graph to illustrate the problem which unit trust holders sometimes face – known as the “buy high, sell low” trap.

Minutes of the Hamilton Financial Advisory Panel Meeting

21st November 2019 – 38 Dean Park Mews, Edinburgh, EH4 1ED

Present: Chairman – Alex Hammond Chambers (AHC), Andrew Hamilton (ANH), Max Ward (MW), Robert Hunter (RH), Charles Heenan (CH), Peter Rintoul (PR), Steven Plag (SP) and Simon Milne (SM).
Guests: Peter Forrester (PF)
Apologies: Angus Tulloch (AT), Keith Falconer (KF) and Mark Tyndall (MT).

Introduction (Andrew Hamilton)

We live in interesting and to be frank testing times. Wherever you look, the picture looks pretty bleak and the list of trouble spots are seemingly endless. In the UK, we have a General Election, the outcome of which is uncertain. Hong Kong has erupted almost out of the blue. In the US, impeachment proceedings have begun against the present incumbent of the White House, Donald Trump. Turkey, a member of NATO, has embarked on a strategy of aggression towards the Kurds with the help of NATO’s adversary, Russia. If Brexit gets done, the EU will lose its third largest contributor to the EUC budget at 11.88% of the total.

We are lucky to have the support of our Advisory Panel, chaired by Alex Hammond Chambers. Last week, the panel met at our office to discuss various questions put to them by my team. What follows is a transcript of the discussion. (This does not constitute investment advice).

What is the future for UK small cap and mid cap funds after 12th December?

AHC: The result of the upcoming general election will be binary: that is either the Conservatives will get a majority to deliver Brexit or they won’t.

MW: When there is a lack of liquidity in the market, the market has a far more drastic reaction to binary events such as the upcoming election. I say this from personal experience. The day after the EU referendum in 2016, someone picked up Redrow shares for £1.00 (closing price £4.40)!

There used to be a zero probability of Mr Corbyn winning the general election. But this is no longer the case – we are living in a different world now. We could easily have a hung parliament. (Under a Jeremy Corbyn government, there will be a queue at the exit door.)

AHC: I agree. Brexit is not nearly as much as a risk to client assets as a Corbyn government. A Corbyn government will destroy wealth. However, I think this an unlikely outcome. Politics determines economics.

MW: You would have a better economy for 18 months under a Corbyn government as he would chuck money everywhere. It is similar to wetting oneself – feels warm to start but the clammy feeling sets in soon enough.

SM: It is a worrying time, Amber Rudd told me that if the last general election had run one extra day, Theresa May would have lost.

SP: I think the polls are underestimating the size of the likely Conservative majority. The standard polling techniques and media coverage can make you live in a confirmation bias bubble and believe in outcomes that are actually very unlikely (as we saw with strong views from the conventional polls and mainstream media of ‘no Brexit’, a ‘Theresa May landslide’, and a ‘Clinton win’). The best polling technique is called multi-level regression and post stratification (MRP); this polling technique got Brexit, the US election and Theresa May’s loss of a majority spot on. I am sanguine about the outcome of the election.

RH: Tactical voting will come into play. I think the polls will be very unreliable, but I think that Boris will get the majority he wants. Small caps and mid-caps are a good buy at the moment because they are undervalued thanks to Brexit uncertainty. I am increasing client’s exposure to UK small caps, but I could easily be too early.

CH: Small caps are facing headwinds, such as Woodford Investment Management ending up with big illiquid positions in a shrinking fund, and the unwanted effect of Mifid II driving a lot of small cap researchers out of business. But there will be opportunities at the right price for patient investors.

AHC: It is a good time to buy as it is easier to buy when there are lots of sellers – the spreads favour buyers in such times.

SP: In the unlikely event that Corbyn wins or is propped up in a minority government – I would focus my concerns not just on equities but also on the Gilts market and Sterling.

AHC: I agree, I think there could easily be a blackhole. i.e. Mr Corbyn might find that the Gilt market goes on strike.

AHC: In conclusion, we haven’t got a clue what will happen on 12th December! If Boris gets a majority, UK small caps will get some relief (good buy) whilst a Corbyn majority – well, you will have a hell of a lot more to worry about.

What do you think the effects will be to global and Asian markets if there is a disaster in Hong Kong?

AHC: Gold, already being supported by heavy buying from China and Russia, will go through the roof.

ANH: Chinese mainstream media is not reporting what is going on in Hong Kong. Anyway, there is already lots of pessimism in China and a marked slowdown in economic growth. Small businesses are struggling. However, they have a good, young and well educated middle class which should help them survive.

PF: The Hong Kong stock market is down 10% from its April peak. Hong Kong’s protesters are currently backed by the US, but Trump may dump their cause to appease China – who knows? Hong Kong banks and property will suffer but overall, Asian funds don’t hold much in Hong Kong.

CH: If there was a disaster, external businesses would just relocate from Hong Kong to Singapore, China, Indonesia etc.

SP: The Congress has just written up a Bill that mandates sanctions on Chinese and Hong Kong officials who carry out human rights abuses and requires an annual review of the favourable trade status that Washington grants Hong Kong. Trump cannot veto this. This will not help the background to the trade talks between China and the USA which equity markets are very, very sensitive to. This needs careful watching. If things go from bad to worse with the US relationship with China over Hong Kong and trade talks, some fear that China could dump its holdings of US treasuries damaging the treasury market and potentially pushing up interest rates in the US. China owns around 5% of the US treasury market. But this could be seen as akin to China starting a ‘financial war’ with the US and it has been suggested by analysts that China could actually have its treasury holdings cancelled by the US treasury to stop any damage.

PF: That could be a buying opportunity. Markets have stopped reacting to fundamentals and instead they react to the media.

AHC: The events in Taiwan will be more important than in Hong Kong.

RH: Although the situation in Hong Kong is worrying, the amount of direct exposure to Hong Kong we have in client portfolios is limited. Confidence in the region could be impacted significantly if the position was to deteriorate further affecting markets in Asia. The trade relationship between China and the US is also
taking centre stage as we head to the US presidential elections. Over the longer term I think there is an argument that the events of Tiananmen Square 30 years ago led in part to the liberalisation of the Chinese economy, which has had such a large impact on the global economy.

AHC: In conclusion, if you own any funds with Hong Kong stocks, stick with it.

What are your views on Environmental, Social and Governance (ESG) funds?

Angus Tulloch had produced a paper on ESG and socially Responsible Investing (SRI) for circulation as he could not attend the meeting. He believes that ESG is not an asset class or sector – it is a research tool identifying potential regulatory and reputational risks facing businesses.

AHC asked the panel to consider how Hamilton Financial might address the relatively new fashion for backing funds that invest in companies that pass the ESG test.

MW: I have not had any issues with my board or shareholders regarding ESG. I am not much taken with the argument that it is immoral to buy shares in tobacco companies but perfectly OK to buy shares in Sainsbury’s, which also sells a lot of tobacco, because the scale of its immoral behaviour is small in relation to the overall size of its business. (Think what you could justify applying this argument to bribery). The argument itself is the first cousin of the housemaid’s baby argument. The housemaid in question, who worked for a pious bishop, produced a baby out of wedlock. On being upbraided by her employer for this sinful behaviour, she entered the plea in mitigation that the baby was only a small one and thus so too was the sin.

RH: We ask clients for their views on ethical investing. We find that the millennials are more interested in the subject than older clients. We use a programme called Sustainalytics which researches ESG and corporate governance – funds are rated for ESG and SRI.

CH: ESG is used too often as a marketing opportunity to tick a compliance box. But when you look closer into company ESG policies, you begin to notice issues. No two company policies are the same. As ethical issues are all very subjective, funds will need to be transparent about how they treat ESG, and clients will need to decide which issues are most important to them. It is definitely not all black and white!

MW: ESG could do phenomenal harm especially to fossil fuels. If you cut capital investment for gas exploration for example, the economic consequence could be hugely damaging.

CH: I agree. Blind subservience to subjective models such as ESG could be devastating for economies and society.

AHC: People don’t realise that BP invests billions into Alternative Energy

RH: We may find that these low rated ESG companies will be funded by Private Equity in the future.

AHC: The United Nations makes a list of what you can and can’t invest in with regards to ESG. A lot of trustees cop out of responsibility by using the UN list. The MSCI also produce ratings for ESG – these may be worth looking at.

PR: I once had a client who did not want to invest in Government Treasuries – they believed Gilts were funding the Iraq war!

SM: Every fund manager in whose fund we invest will be looking at ESG.

AHC: It may be easier to handle this subject on a client by client basis.

Is liquidity in the stock market currently a problem?

MW: Liquidity can be a problem. There was a  time when liquidity in the FTSE disappeared – you could only deal in the top 20 stocks. I remember trimming one of my holdings as it had done pretty well and was becoming too large a holding. My small sale knocked the share price 10%.

AHC: Lack of liquidity affects confidence in markets and any further reduction in volumes may lead to City redundancies.

Is the outcome of Brexit something to worry about?

AHC: Brexit is the elephant in the room because people think it is the elephant in the room.

CH: As we said at the beginning, Brexit is a temporary set-back – a Corbyn government looks like a bigger risk.

ANH: Managers such as Nick Train of Finsbury Income and Growth and Katie Potts of Herald do not see Brexit as a risk to the health of their funds.

AHC: They are not concerned because they have such long-term time horizons – 15 years or so. We should adopt the same rationale.

What are your views on Gold? Would you hold it in your investment portfolio?

AHC: I hold gold for liquidity.

CH: Gold is very interesting as it is diversified from other financial assets; it is no one else’s liability. I wouldn’t go into a fund of gold miners. Either own the mining shares straight up, or an ETF or another vehicle that is as simple as possible, and ideally even allows you to claim your gold physically, if necessary.

SP: I would advise holding physical gold rather than an ETF or a gold mining stock. Both these instruments can have a surprisingly poor correlation to the gold price. You can take physical ownership through for example the Royal Mint Bullion service; all coins produced by the Royal Mint qualify as British legal currency and are exempt from Capital Gains Tax. You will though pay a premium for buying gold in the form of a coin relative to the live gold price. You can also take physical ownership of gold through a company like ‘Bullion Vault’ which holds what is known as a bailment – you own part of a gold bar. If you wish, you can actually buy and hold your own specific numbered bar and chose which ‘Bullion Vault’ safe it is kept in and that includes Switzerland which some investors believe might prevent confiscation by government, as happened to holders of gold in the US in the 1930s. I would look to buy gold if we have another ‘liquidity event’ as we saw in 2008 when all assets were correlated and fell dramatically. Funds facing redemptions will often sell gold as a highly liquid asset to meet redemptions and this can really depress the price and create a good buying opportunity.

AHC: But if the price of gold went through the roof, politicians would never allow you to get hold of your gold.

MW: There are options which guarantee your gold will be paid.

SM: There is an ETF in London which is backed by physical gold. You can visit the vault to see your bullion.

SP: Hedge funds use them to make money – they buy when gold is on the floor.

AH-C: There is always almost a place for gold which Andy, I believe you achieve through investing your clients in “defensive” trusts.

What will happen if we get a Corbyn government?

SP: From an investment standpoint, with a surprise Corbyn working majority, an immediate run on the pound would occur and immediate share price falls, particularly in those companies targeted for nationalisation or part nationalisation along with aerospace and defence contractors. Falling Sterling may see some big overseas earners less impacted as their profits and dividends would benefit from weaker Sterling. And as we discussed earlier – the gilts market could take a drubbing and that could force interest rates up. Also in prospect could be currency controls, which were removed, only back in 1979. From a wealth standpoint – the tax burden will rise – with possibly even a wealth tax on total assets plus additional property taxes – and a hit to tax incentivised products such as pensions, ISAs, VCTs and EIS. From a social standpoint – I think things might get tougher than people might imagine – I could see strikes ballooning as unions are reenergised and empowered, leading to shortages of essential goods and services in turn leading to social unrest – perhaps with us even in danger of slipping to an ‘Argentina lite’ situation. Ultimately the only way to protect yourself would be to leave the country – but even that might be difficult with an ‘exit tax’ perhaps being applied to your net worth. Additionally, attractive refuges like New Zealand are making it more difficult to buy land and property for foreigners.


AHC: On that very cheerful note (!), I think it’s time to wrap up this panel discussion – thank you everyone for coming and your interesting and entertaining comments. Andy, I think you are about to ask us to invest £20 on the outcome of the 12 December General Election, is that right?

ANH: Yes! Now I just need your forecasts on 12th December for (1) the number of seats in the UK (650 in total) which will be won by the Conservative & Unionist party and (2) ditto, for the number of seats (59 in total) which will won by the Tories in Scotland. £10 for each bet. Winner takes all in both competitions – so the prize is £110 for the winner of each competition. Best of luck!

ANH: Thanks very much Alex to you and your splendid panel. Riveting stuff.

Dear Reader,

I spent the summer of this year in the garden at our cottage in Argyll thinking nothing could tempt me back to an office desk in Edinburgh, not midge, not even Winter.

Early summer, my friend Robbie Hunter, called and said that he had mentioned my name to Andrew; he thought there could be interesting opportunity and would I have a chat?

I have known Andrew for twenty five years. I initially spotted him from my window at Ivory & Sime when he was being bundled into the back of a Black Maria during the Scottish Countryside Alliance protest outside Bute House: and then some years later on the outfield of the cricket pitch at Gifford, and in the Goblin Ha’ afterwards. (Fat Bearded Bastards v Miles Nelson XI 2006.) I liked the cut of his jib.

More recently I had seen both Andrew and Peter Rintoul at investment seminars and lunches in London and Edinburgh. I have known Peter for twenty one years as he arrived at Turcan Connell when I had just moved to head up investments at Murray Beith Murray Asset Management. Over the years we have kept in touch, I met Anne and we would meet for drinks and good lunches.

From high on the cliffs over-looking the Sound of Jura (the only spot we can get mobile reception at Dounie), we talked. Peter later showed me the Hamilton Financial investment proposition and the portfolios he and the HF team had built over the last five years. Andrew showed me its 5 year performance. It was incredible. I knew all the holdings: I had met and knew their managers well and most importantly they were mainly investment trusts – the best investment vehicles known to man – which I have been studying for the last twenty five years.

Another connection I had to HF was Alex Hammond Chambers, the Chairman of the HF Advisory Panel. Alex I knew from the ten years I was at Aubrey Capital Management. He and I had shared many a good discussion about the investment landscape and the myriad of individual investment trusts whose boards he sat on. He was by far the most interesting client I have ever had. The thought of Alex chairing such an illustrious panel of investors was extremely compelling.

Victoria I knew via Robbie. I asked Victoria to conduct a review of my financial affairs; pensions, savings, life insurance, so I could find out more about the financial planning side of HF. Victoria converted a small defined benefit pension plan I had almost forgotten about, into a lottery sized payout. I can now run this in my SIPP; I can take my pension benefits when I choose. And I can pass the SIPP to my children Inheritance tax free. The review was handled with discretion, empathy, professionalism, accuracy and attention to detail. I feel far more in control of my affairs as a result. I would advise anyone of my age – 55 or above – to get Victoria to do the same for them.

Perhaps less reassuring was the lunch I had with Steve Plag. If you didn’t hear Steve’s talk at the Grange Cricket Club last month, I would urge you to read the minutes of the HF Advisory Panel. A different type of winter is coming, an asset price winter, and every family should be taking a long hard look at what assets they own. A particularly pernicious asset price deflationary shock will not be pretty; prices of houses, savings, pensions and collectibles will be greatly impacted. In the coming decade yield, liquidity and rarity will be the dictators of price. There are cracks showing, the mainstream is not listening and there is a job to be done.

No deal could be sealed with my new employer until lunch with Susie and Xa which was both reassuring and fun. Finally, nothing would be possible in the office without Loren. A hive of efficiency, a millennial knowledge of all things computer related, and a very good egg.

A month in, I have no regrets. I hope very much that I can help clients, and provide some continuity to the excellent work which is going on at Hamilton Financial.

Andrew’s boundless enthusiasm and his insistence on making work fun, is infectious. I have already met some extremely nice clients who plainly value the service which they get from Andrew and his team.

Long may this continue!
Happy Christmas

Simon Milne