Federal Reserve chairman Alan Greenspan's much anticipated interest rate cut in the US early this month did little to stimulate markets and the Bank of England's subsequ ent decision not to reduce rates came as a blow.
Investors would be right to feel less enthusiastic than last year. Annual unit trust returns averaged 25 per cent a year ago but performance has fallen to a current annual negative average of -6 per cent.
The 60 per cent return in the last 12 months from the top-performing unit trust, Framlington health, compares poorly with the 350 per cent achieved by the previous year's chart-topper, Invesco Japan ese smaller companies.
With 40 per cent of fund sales generated during the Pep or Isa season, the investment industry is busy working out its strategy to combat the current mood. But while a few fund managers are taking the nervous mood of inv estors as a time to push their more conservative funds, a few have decided to buck the trend.
Last week, Credit Suisse Asset Man agement announ ced a new technology, media and telecoms fund at a time when TMT is at the very back of most investors' minds. After del aying the launch for several months, CSAM belie ves TMT is looking good value again. It stresses it is not calling the bottom of the market but bel ieves we are a long way off the top.
Managing director Ian Chimes says: “Sometimes, the best time to buy a market is when sentiment is flat. What we have seen with TMT is a value play on a growth market. There has been a serious correction based on expectations getting ahead of themsel ves, Many of the com panies are still as valuable as they were a year ago but half the price.”
Chimes points out that stocks such as Vodafone, Sam sung, Cisco and Micro soft are all around 50 per cent off their highs last March but are still very strong companies.
Perhaps the strongest end orsement of the sector's pot en tial is equity income manager Bill Mott's decision to begin buying TMT stocks for his funds. Having stayed clear when TMT was at its most pop ular, Mott is once again bucking the trend and rem ains confident about markets in general for the first quarter of 2001.
He says: “Despite some volatility in the next few weeks, the pull of lower interest rates will be the dominant force and markets will perform well in the first few months of this year in expectation of a soft landing and continued growth. Con se quently, some of the areas of the market which have shown meagre returns in recent months may begin to recover.
“In recent weeks, we have started to seek selected opportunities in technology and the income funds are now overweight in the media sector while cutting back exposure to defensive areas of the market such as utilities and food retailers. The market is changing and so is our portfolio.”
IFAs' response to CSAM's move remains mixed. While many see it as a brave step, not so many are willing to hurry cli ent money into the fund.
Michael Philips partner Michael Both feels CSAM will face a challenge in convincing the market that now is the time to get back into TMT.
He says: “Telecoms are certainly at their lowest for a couple of years but whether that means this is the right time to launch a fund is a different matter. I would be happy to give it the benefit of the doubt in terms of success but it may struggle getting this fund away. For braver clients, we would consider recommending it.”
CSAM's fund is sure to take a reasonable amount of money over the coming Isa season. While investors have a tend ency to jump on any passing bandwagon during the Isa season, there are many who opt to do the opposite to everyone else.
There is a compelling logic to CSAM's argument for getting back into TMT and it seems certain that those dipping into the sector this Feb ruary will fare much better than those who jumped in this time last year. As yet, however, Mott is one of the few to express strong optimism.
Both says: “I think the market being what it is, there is room for good stock-picking but there is no easy money to be made at the moment.”