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Brian Tora: US solution leaves markets feeling more settled

Neil Woodford’s resignation is an unfolding story to watch 

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Such is the perverse nature of markets that when a deal was eventually reached over the US debt ceiling, our own FTSE 100 index gave back some of the ground it had regained in the days before the announcement.

I suppose it is usually better to travel than to arrive but I confess to feeling a sense of relief that this sorry saga has drawn to a close. We can now concentrate on what else might be happening that will drive sentiment.

Economically, we seem on a more settled, if unexciting, course. The UK’s prospects have been upgraded by the IMF, even if the overall rate of global growth is expected to moderate.

Much of this is down to concerns over emerging markets although the hit they took on expectations of the start of tapering the level of quantitative easing in the US seems misplaced. While it will happen at some stage, the likelihood of anything happening this year is evaporating.

Gold was also something of a perceived victim of the end of monetary easing. Interestingly, it appears that the decline from the peak in September 2011 has taken place against a rise in demand for the physical metal. 

Selling pressure came from exchange traded funds and other instruments used by investors and traders rather than from those industries that actually
need the stuff.

With the goldminers themselves making strenuous efforts to cut the cost of production, perhaps recent weakness provides an opportunity rather than representing
a future threat.

That, at least, is the view of Craton Capital, a South African fund manager that specialises in this area. Of course, it is hardly in its interests to talk down the price of gold but a recent comment it sent out did make a good case for believing that the decline in the price might have been overdone.

I have never been much of a gold buff myself although I did have the pleasure of working with the late Julian Baring on the launch of his Gold & General fund, now in the BlackRock stable. And it is a legitimate asset class.

As for fixed interest, even that feels much calmer these days. With inflation looking less of a threat than many (including me) perceived, there appears less risk in aspects of this market although for the life of me I cannot see why investors should accept sub-inflation returns such as those on offer in the UK gilts market. 

Risk-off investors seeking safety might feel they have few alternatives but the rest of us can surely be a little more adventurous.

The big news of last week was, of course, resignations. Aside from the Burberry boss leaving to join Apple and thus cutting the number of female chief executives of FTSE 100 companies by a third, the surprise impending departure of Neil Woodford from Invesco Perpetual secured headlines around the media, including in publications not generally given to commenting on financial stories.

Such was the kneejerk reaction that shares in the Edinburgh Investment Trust, which Mr Woodford runs, took a caning. But this fund manager legend is not leaving the industry – he is planning to return with his own offering. And investment trusts are run by independent boards of directors – not by the groups which might have the mandate to manage the portfolio. 

Time enough to worry about Edinburgh’s future when that of Neil Woodford becomes clearer.

The investment world is sprinkled with a fair few breakaway management groups. Nick Train and Michael Lindsell were once at GT and M&G but have run their own successful fund manager, Lindsell Train, for some years now – and they also have investment trust mandates in their stable. 

And there are many other examples. Investment management is a dynamic business. This is an unfolding story to watch.

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

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