View more on these topics

Brian Tora: Glass half-full of equities


Two weeks have gone by since my thoughts last graced these pages and it is remarkable how little appears to have changed.

True, US markets have succeeded in posting new highs, despite the fact that monetary stimulus is coming to an end, according to the latest minutes of the Fed’s Open Markets Committee (FOMC), but back at home the Footsie has once again shied away from breaking above the 1999 high.

The signals reaching investors have been mixed.

We are seeing a flow of company results that generally contain few unpleasant surprises, while on the other hand there are signs the Bank of England’s Monetary Policy Committee – our equivalent of the FOMC – is turning more hawkish. It seems central banks on both sides of the Atlantic are reaching the decision that the economic recovery is now sufficiently well founded to turn off the cash tap.

Quite why markets seem to be taking different views on what this might mean for the future is hard to assess. Perhaps it is the effect this is all having on currencies. The US dollar remains weak, while sterling has held on to recent gains, possibly because the outlook for Europe continues to be clouded in uncertainty. 

Then again, it could just be because the nature of our benchmark equity index bears little relevance to the underlying UK economy. Indeed, the performance of the significantly more UK-centric FTSE 250 index has been far superior to that of the FTSE 100.

I have not made a comparison recently of the behaviour of UK smaller company funds against those concentrating on larger capitalisation companies but my bet is that they are doing better as a result. Not that it has all been plain sailing, as recent shake-outs in the 250 index attest.

And herein lies the conundrum. Smaller companies are more exciting and potentially more rewarding, but contain greater risks and the probability of greater volatility. Smaller companies are usually less well researched, creating opportunities, but they are also likely to be less liquid too.

When circumstances change – as they do – it can be most frustrating to find that the share you wish to sell is suffering from a dearth of buyers and collapsing in price as a consequence.

But the bigger question must be: where are equities going from here? With all the talk about rising interest rates – inevitable at some stage – bonds are looking less appealing, but equities, at least in the UK, seem to have stalled. Of course, last week’s strikes by public sector workers will have raised fears that wage inflation could re-emerge to upset plans, but thankfully there is little sign of it yet.

Being a glass-half-full sort of investor, my confidence is undented, though I find it hard to see why a resource-rich index like the Footsie can make much progress without a renewed global economic boom. With both China and India working hard to keep growth levels as high as they can, this need not be ruled out, but consumerism outside the developed nations is not yet sufficiently robust to pick up the running – yet.

All this adds up to a continued belief in backing equities overall but adopting a wide diversification approach and taking an active stance. Despite the continuing advance of indexation methods in portfolio management, the day of the active manager is far from over.

Looking further out, the demographic pressures that continue to create concern in many countries will doubtless influence both governmental policy and investor sentiment but, optimist that I am, I expect this to create opportunities as well as threats.

Brian Tora is an associate with investment managers, JM Finn & Co



Kim North: FSCS needs to work harder to reduce costs

As we enter the quieter summer months, many leave their desks to head to a family holiday while I keep my eyes open for news stories that might want to slip through without attracting too much attention. I could not believe last week’s news that the Financial Services Compensation Scheme may throw away a scheme to […]

Financial services regulation and ethics

CPD: Financial services regulation and ethics

The latest edition of Newsbrief counts as 1 hour of structured CPD and covers the regulatory and marketplace changes that took place during June 2014. Visit the Money Marketing CPD Centre to answer 10 multiple choice questions and complete this CPD activity. Just click into your CPD Plan and you’ll find each month’s marketplace changes round-up in your activity list.


What advisers are saying/Phil Wickenden: Punchonomics

The link between inputs and outputs is not always clear. That which dwells in the space between cause and effect can be downright elusive. While this premise can often be aptly applied to the concept of retirement planning, the recent case of Tommy Main’s death, after engaging in the latest online gaming abhorrence “Punch4Punch”, is […]


Compliance tip – Phil Young: Unused knowledge is a dangerous thing

It would be entirely self-serving to suggest that investing in an external compliance review is a very good idea so instead I suggest that if you do pay for a report, you really need to make use of the results. Your consultant should construct a set of actions for you to implement within your business […]

Guarantees in the retirement income market

Lorna Blyth, Royal London  Do guarantees benefit customers and, if so, when? To answer this conundrum we commissioned Millimans, a global actuarial consulting firm, to conduct an independent review of the UK retirement income market and whether guarantees really do offer customers better value for money. The brief The study was one of the most comprehensive undertaken […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment