Is a fund manager's job redundant in these markets?
Someone remarked to me a little while ago that I was unlikely to have much trouble finding subject matter to write about at present. This is true, given the flow of economic news swamping the front pages of our newspapers and leading the broadcast media news programmes at present, but the problem is that so much is simply a repeat of what has gone before.
Take last week, for example. European debt and austerity measures were once again at the forefront, while pronouncements on eco-nomic growth from both the IMF and the Fed added to the gloom pervading markets.
There were still some good days for shares. The pattern seemed to be a few percentage points off the market one day, to be followed by a recovery of similar magnitude the next.
But the general direction for the market is down. So far, there is little evidence that our policymakers have a real grip on what is going on. Political pressures might be blamed for a degree of inaction in Europe but there is a growing fear that nobody really knows what will effectively move Western economies up a gear without exacerbating the debt problem. It seems the price to be paid for years of over-consumption could be a lost decade.
Needless to say, the problems facing the global economy in general and the European single-currency zone in particular were high on the list of the concerns expressed by those attending the Association of Investment Companies investment roadshow in Ascot recently.
Such were the exceptional circumstances that Bruce Stout, senior investment manager at Murray International, dumped his presentation to speak exclusively on current market conditions.
Stout had been due to talk on the subject of a fund manager’s perspective but it would have focused on the strategy currently being adopted and the process employed. He contended that current market conditions make the job of fund manager almost redundant. Inaction is preferable to overreacting to the wild swings taking place in share prices.
In his opinion, picking good shares that are capable of growing their dividends and sticking with them is the best policy. This is a very Buffett-like approach - but one that might not lead to capital growth in the short term.
Still, if the income stream continues to rise, the longer-term outlook should not be that bad. It did make me wonder where all that volatility is being generated if sensible managers are battening down the hatches and endeavouring to ride out the storm.
One cannot help wonder what influence proprietary traders and hedge fund managers are having on the market. It is not too fanciful to consider that, since fast-moving markets can be both an opportunity and a threat to short-term traders, there could be a degree of second-guessing taking place on the trading floors.
A trader, gazing at the bank of screens, might light upon a piece of information he believes could encourage a rival trader to short a particular stock from his position across the canyon that divides their respective investment banks.
Getting in first would be tempting. Trading is, after all, as much about instincts as it is a scientific operation based on sound fundamental research.
And fundamental research feels pretty useless right now, with events sweeping us down a path along which we have never previously ventured.
It suggests Stout’s strategy may have much to commend it. Trying to profit from market swings when the cause of the volatility may be no more than a trader’s whim does not strike me as a sensible strategy. Let’s just hope things calm down as autumn progresses.
Brian Tora is an associate with investment managers JM Finn & Co