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Confidence booster

Despite the fact that the bear market has lost some of its bite

recently, fund sales show little sign of improving. According to the

Investment Manage-ment Association, sales of Isas plummeted to

£576m in March from £992m at the same time last year.

Although these figures have done little to lift the gloom, a survey

by JP Morgan Fleming has found that investor confidence almost

doubled last month, rocketing to 80 points from 45. This is the

highest it has been since April 2002.

The monthly survey, based on a sample of 500 investors, measures

confidence by asking respondents whether they believe the stockmarket

will have risen in six month&#39s time. It found that 38 per cent of

investors (up from 21 per cent in March) believe the stockmarket will

rise while 27 per cent (down from 47 per cent) think it will fall.

JP Morgan attributes the confidence boost to the collapse of the

regime in Iraq, falling oil prices and the stockmarket rally of March

and April.

Head of market research Peter Brewster says: “These factors have

prompted cautious optimism among investors. It will be interesting to

see whe-ther this renewed confidence lasts or whether signs of

current economic weakness inthe world economy dampens sentiment in

the months ahead.”

According to the other main barometer of sentiment – Hargreaves

Lansdown&#39s confidence survey – investors are gradually returning to

equities. In its March survey, HL found that 20 per cent of investors

were likely or very likely to invest in a unit trust over the next 12

months. In February, this figure was 16 per cent.

But more investors in February (78 per cent) intended to buy an Isa

than in the following month, when the percentage fell to 75 per cent.

The drop seems likely to be a result of the fact that the survey was

conducted when the market looked unlikely to rise any further – a

measure, IFAs believe, of how investors&#39 attitude towards the

stockmarket has changed.

needanadviser.com director Jo Roberts says: “Confidence is rising

every day but the trouble is that investors are very fickle. Since

the stockmarket started falling so heavily, awareness of its

movements has increased, which is beneficial when it rises but

damaging when it falls. But it is the industry&#39s sentiment that is

particularly low at the moment.”

Nevertheless, there are a number of fund managers currently claiming

that the UK is witnessing a mild upturn. Baring Asset Management is

among those experiencing a small shift in the type of business it is

getting. But it still fears the occasional investor will require hard

evidence of a sustained upsurge to convince them to return to the

market.

Marketing director Ian Pascal says: “We are seeing some more interest

in traditional market equity funds, with a gradual switch from

Government bonds and the like. But too many Isa investors have seen

substantial negative returns – they will need to see a long period of

consistent growth before they get back into the market.”

Pascal says BAM is confident that there will be a recovery but

expects it to be gradual and erratic. It is view supported by a large

number of fund managers but some believe the recent rises –

especially in terms of their impact on inv-estors&#39 valuation

statements, many of which go out soon – could spark a shorter-term

boost to sales.

Credit Suisse Asset Management managing director Ian Chimes says: “We

think May could well be breakthrough month, where many people go from

keeping a watching brief to actually getting in the stockmarket.

There is a possibility there will be reasonable Isa business in the

next two months, with inv-estors who own multiple products looking to

increase their contributions.”

CSAM&#39s valuation statements go out to investors later this month.

Chimes says they are in some ways the healthiest for three years – a

boost he hopes will reassure investors that the financial pain they

have suffered will eventually pay off. In terms of measuring

sentiment by the success of new fund launches, however, there have

been mixed results.

Fidelity&#39s global focus fund, for instance, took in less than

£2m in the first six weeks following its launch in mid-January –

a pittance for the world&#39s biggest fund manager.

New Star, similarly, did not attract heavy inflows into its

distribution fund at launch in February although it did manage to

raise around £10m in the first few weeks. But there are signs

that this slump is coming to an end.

Cazenove Fund Managers&#39 UK growth & income fund, for example,

launched four mon-ths ago but its strong performance has kept inflows

rattling in to the tune of more than £150m. Much of that has

come from multi-man-agers but a significant chunk is retail money.

Managing director Robin Minter-Kemp says: “The market is getting

brighter and we are getting money on the back of it. Cash is up 0.3

per cent and the UK all companies sector is up 9 per cent. If that

does not drive investor sentiment, I don&#39t know what will.”

Sentiment does seem to be gradually improving but there is still

cause for concern. More than three years of falling returns will not

be undone in investors&#39 minds by a brief rally that has lasted a

fraction of the length of the bull market.

If markets can slowly claw their way up in spite of the slowing economy, then

high inv-estor confidence may begin to re-emerge. But if they fail,

sentiment may take another battering that it could struggle to

recover from for many years.

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