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Bolton’s big prediction

This financial crisis is catching everyone out. Housing analysts who a couple of years ago told us that there would not be a crash are looking a tad foolish at the moment as house price falls are recorded each month.

Likewise, the jury has been out on whether the FTSE 100 will plunge below the 5,000 barrier and whether people should bail out from equities.

Certainly, Nicola Horlick reckons you should avoid equities for the next two to three years but it has not been lost on rivals that her wealth management company, Bramdean, dabbles in alternative investments only and shares are off its radar.

That is why I have sympathy with IFAs – the market is impossible to call. Even the analysts can be a bit late on to a story.

A couple of weeks back, RBS issued a warning that the S&P 500 index is likely to fall by more than 300 points to around 1,050 by September as all the chickens come home to roost from the excesses of the global boom, with contagion spreading across Europe and emerging markets. “Hold on to your jobs and your cash,” was the colourful quote from Bob Janjuah, the analyst who penned the note.

Yet those investors who received fund statements in the past few weeks would agree that RBS’s excitable comments were a bit late. The bear market is well under way. Many funds have been hammered by the turmoil. Most management companies are lucky if they have a couple of funds in their range registering a positive return.

Big-name funds have shed around 20 per cent or more over the past 12 months but many IFAs will be pleased as punch with their selections this year. There has been a distinct defensive nature about their picks when you take a look at Cofunds’ top selling funds. Many are weathering the storm better than others.

The BlackRock absolute alpha fund run by Mark Lyttleton is one. In the 12 months to the end of June, the fund has returned 16.4 per cent compared with a 13 per cent fall in the FTSE All Share. In the year to date it is up by around 9 per cent.

M&G global basics is another favourite which is up by 9 per cent this year and ranked ninth out of 1,800-plus funds. M&G recovery is another popular choice and although it is down by around 4 per cent since January, it is good enough to place it the first quartile. Corporate bond funds, which have been off limits for ages, are back on the agenda and the timing could prove to be right.

Can it get any worse? Many experts, analysts and fund managers will have a view but there are only one or two who will make you sit up and listen. These are the ones who have delivered the goods time after time. It is why the words of Anthony Bolton might offer some comfort.

He suggests that investors should hang on in there and not get bearish as the market falls. For those happy to remain invested, he reckons that they should focus on big, good quality companies.

Bolton tells me: “Avoid at all costs smaller and medium-sized companies with weak balance sheets. Usually the mistakes I have made in more than 30 years as a fund manager have concerned companies with poor finances.

“Balance sheet strength is particularly important at times like these. If we enter a recession, then the strongest companies are those most likely to survive. I am expecting many more rights issues and a few company failures.”

But if you want one forecast to brighten up your day (and believe it), then take this from one of the most successful fund managers of his generation. “I believe we are well over halfway through the current bear market and a patient investor taking a two to three-year view should be well rewarded.”

It is a little more reassuring than the pessimism from RBS.

Paul Farrow is digital personal finance editor at the Telegraph Media GroupMoney Marketing

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