A testing outlook

6 January 2010 11:05 am

Brian Tora’s Investment View

Having looked back in my last Investment View, I now feel obliged to take a gander at the future.

Forecasting is a mug’s game. As the great Peter Lynch – iconic manager of Fidelity’s Magellan Fund – wrote in his post retirement book, “Beating the Street”, nobody can predict interest rates, the future direction of the economy or the stock market. Dismiss all such forecasts.

It doesn’t stop people trying, though. I have been looking through some of the predictions that emerged as the old year was ending. There is a remarkable consistency of views. It makes me wonder whether Kenneth Fleet had a point when he dismissed the fund management industry as “pin-striped sheep”. That was more than 30 years ago, but I do wish I had kept those forecasts from a year ago when it felt as though the whole capitalist system was imploding.

According to the Association of Investment Companies, which polled its managers last month, the majority believed the FTSE 100 index would end 2010 at between 5,500 and 6,000. At the time they were asked it stood at around 5,300, so they are hardly holding a hostage to fortune in making such a forecast. It seems the industry is expecting things to be “steady as she goes”. I for one won’t be disappointed if they are right.

As for the detail, emerging markets were tipped as the likely best performing region. As it happens, this area did not top the AIC tables in 2009.

However, there was a similarity between the year just ended and expectations for 2010 in the sector choice. Commodities and natural resources led last year and are expected to do so again, according to the poll.

Perhaps the most interesting finding was that 28 per cent of managers expect gold to be the best performing asset in the year to come. This suggests they remain downbeat about prospects for the dollar and expect economic uncertainty to persist.

What might happen to the dollar is anybody’s guess, but economic prospects, in this country at any rate, look anything but certain.

It happens that equities were the asset choice of the largest group of managers, with 50 per cent expecting them to outperform the rest. No-one thought bonds or residential property would top the tables and a meagre 5 per cent backed commercial property. There were even a pessimistic few that expected cash to be king. Given the derisory levels of interest presently obtainable, that doesn’t sound too cheering for the rest.

The one event we can forecast with reasonable certainty is that there will be a General Election next year. It will probably take place on May 6, but it could come sooner – or even a little later – depending on what the opinion polls tell the incumbent government.

We cannot, though, forecast the result. We might expect the Labour majority to be cut, but that is not the same as predicting a new Conservative government.

We can be pretty certain there will be a Budget very soon after. The measures in that budget are likely to have quite an impact on the investment industry, regardless of who delivers it. And I doubt the impact will feel comfortable. So, against my better judgment, I will make one forecast. Regardless of whether markets rise or fall, advisers and their clients are in for a tricky and testing year. This is one forecast I’d gladly get wrong.

Brian Tora (brian.tora@centaur.co.uk) is principal of the Tora Partnership

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