|
Volatility guaranteed, if nothing else
By Fiona Hamilton
Financial markets have been so turbulent over the past nine months that even the investment professionals are unusually uncertain about the outlook. There have been great opportunities to make money, particularly in natural resources, but it has been even easier to lose it. The FTSE All Share index (UKX) has recouped a lot of its earlier falls, but many of its constituent companies remain 20-40% below last year's peaks, and most overseas markets have suffered similarly mixed fortunes.
Some experts believe bonds could be a good refuge, others disagree. Some prefer the safety of cash, others worry that it provides little protection against rising inflation. So it's not surprising that the investment houses have been finding it as hard to move their wares as retailers on the high street.
Many of us will struggle to maintain a decent standard of living later in life unless we keep squirreling away some savings and make them work by investing them. But the big problem is which part of the global stockmarket should we favour, and when should we take the plunge?
Funds in the three managed sectors offer a potential answer as they mix equities with other investments, and UK with overseas exposure. Cautious managed funds must have not more than 65% in equities, and balanced managed not more than 85%, so they should be comparatively resilient in a setback, but are liable to fall behind in the ensuing recovery.
Active managed funds, however, are far less restricted - they can have all their assets in equities, so long as at least 10% is in non-UK equities, and can move into bonds, cash or other non-equity assets if these look better value. This flexibility gives them the potential to do relatively well in most conditions.
Newton Managed fund is the sector giant, running around £20 billion for big institutions. It invests in a wide range of equity and fixed- income investments from around the world, and has doubled its investors' money over the past five years, while also being in the top
category for capital preservation.
Top-down view
Newton expects 2008 to be a "challenging year", so Clay is cautious. As he believes the stockmarket is too high, he has held about 9% cash since late March, and has bought two bonds: "They're Bank Tier 1 debt in Barclays and HSBC, which were yielding 8%-plus," he says.
Standard Life Investments (SLI) Managed fund also reflects the top-down view of a large and well-respected fund management house, but it puts more emphasis than Newton on UK equities - where it has done well in recent years - and only uses fixed income for tactical purposes. SLI is braced for below-trend growth in all developed economies in 2008. However, it's more comfortable with stockmarkets in the UK, US and Japan than in the Far East excluding Japan and emerging markets, where it's concerned about surging inflation.
"There's a global credit crisis, a global slowdown in trade flows, and a worldwide squeeze on personal incomes and corporate margins from higher raw material prices," it warns.
On the other hand, New Star Active Portfolio is more go-getting than the other two funds, and has achieved better overall returns, albeit with more volatility than Newton. Managers Mark Harris and Craig Heron implement their asset allocation decisions by investing in a wide range of funds, and have recently used put options and other derivatives as protection against a short, sharp setback.
Heron believes there's still money to be made in oil, mining and industrials, as emerging markets press ahead with infrastructure development, but he's cautious about "weak Western economies".
"Over the next two to three years it may be very hard to make returns in equities, so we'll look more to alternatives like currency funds and hedge funds," he says.
Useful links:
|
Send Article by Email
Send Article by IM
Blog This with Y! 360
Printable View