Welcome to November's

Winter just got a whole lot more expensive as four of the big six energy companies (British Gas, npower, Scottish Power and SSE) announced price rises of around 9% in the last few weeks despite their wholesale electricity costs falling over the last three years.

Despite the inevitable obfuscation from the energy companies themselves, data issued by Ofgem, the energy regulator, shows that they have doubled their profit margins over the last 12 months, at a time when the UK has been tightening its collective belt.

This is bad news on a personal level, particularly for those with young families at home and pensioners. They are the major non-industrial consumers of energy and therefore the group that will be hit hardest. However, in the wider scheme of things the price hikes also put upward pressure on the inflation rate. This is potentially bad news for the economic recovery because increased interest rates are the Bank Of England's only weapon against inflation, which now stands, if RPI is taken as the measure, at 3.2%. The problem is that if rates have to be raised to control it there is a real possibility that the recovery could stall.

This is also further bad news for cash investors as inflation continues to erode the real value of cash deposits. With the best rate for a 4 year fixed term cash deposit at the time of writing standing at 2.86% pa before tax it's no surprise that more and more people are looking to their advisers for alternatives to cash.

Consequently more and more people face the dilemma of finding alternatives which don't involve too much risk. With guaranteed funds becoming more expensive the answer for many has been risk-constrained funds, which benchmark a specific amount of risk a fund is exposed to. The effect is generally a smoother investment run when compared to a traditional equity fund.

Its important to stress that they're not entirely risk free, but faced with the mathematical certainty of a real loss of spending power from cash deposits based on the above figures, more and more people are seeing a risk-constrained asset backed approach as a preferable option.

I hope you've enjoyed the blog and please let me know if you require any more information about any of the issues discussed.

Robin Sainty APFS M.A. (Cantab)