World stockmarkets have plummeted following last month's terrorist attacks on the US. What are you advising clients to do with their money during a period of such uncertainty?
Alan Adam: Existing clients stay as they are with no major changes at this time. As for new clients with capital to invest, we are shying away from the market as we believe there are likely to be further falls in the short term. We are, however, preparing these clients to invest shortly as we feel that, once the current situation is addressed, then the outlook and value for investors are encouraging.
Mark Dampier: At times like this, clients tend to bury their head in the sand. We feel clients should review their portfolios and weed out the poorer-performing funds. Many of these have been highlighted by groups such as Best Invest but we feel raising some liquidity to buy into better-performing funds would be a useful tactic. However, where clients already have a good quality portfolio, we would generally suggest that they sit tight through a period of market volatility.
Paul Illot: Stockmarkets dislike uncertainty and we fully expect markets to remain volatile at least over the short term. With markets generally at a low ebb, regular savers should continue to drip feed money into their equity funds to reap the longer-term benefits of pound-cost averaging. As for existing lump-sum investors, the majority of our clients have well balanced portfolios containing fixed interest, cash and sometimes property as well as equity funds and are reasonably well placed to weather short-term setbacks in equity markets.
By switching into gilts or other lower-risk investments, all clients will be doing is crystallising capital losses on equity funds and moving into other investments less likely to help them recoup their losses. We are, therefore, helping to reassure clients in these difficult times and advising them to look beyond this short-term period of stockmarket uncertainty and to focus on the longer term.
For those with new money to invest, we are keen on UK equity income funds, many of which currently have very attractive net dividend yields compared with net interest returns from bank and building society deposits.
Star European fund manager Rory Powe has announced that he is to leave Invesco Perpetual at the end of the year with his fund at a three-year performance low. Do you believe it was his responsibility to turn round the fund's performance before he left?
Alan Adam: Yes, I think Rory Powe should have been left to turn things round. His belief in telecoms stocks, however, would probably mean that it would not bounce back in the short term. I think the fund will come good over the longer term but I believe the powers that be at Invesco saw Rory's strategy as being too high risk for the future.
Mark Dampier: I was very disappointed to learn of the departure of Rory Powe from the Invesco European mandate. In particular, I felt sorry for Invesco, which had clearly been supporting him through this difficult time, and for IFAs like ourselves who had stayed loyal and were expecting him to turn round the fund's performance. Ultimately, you cannot make a person's career choices for them. However, I would have definitely preferred him to have left the company after he turned round the performance of the fund.
Paul Illot: Yes, I do believe the onus was on him to steer the fund back to form. No one likes to leave something at a low ebb when they had previously made it a success. I am sure he would have much rather left the fund on a high note. Powe's longer-term track record speaks for itself but he remained invested in tech stocks far too long and failed to harvest his gains by spotting the trend back to value-orientated companies. We are disappointed he is leaving.
Old Mutual is to launch its new IFA multi-manager platform next month but will not have Fidelity or the four founders of Cofunds on board. Do you believe it will prove to be a successful rival to Skandia without some of the biggest household names?
Alan Adam: The whole multi-manager concept is the choice of fund management groups and the ability to change at low or no cost. Not having access to some major players is certainly a drawback unless, by doing so, they can reduce the costings dramatically. Fidelity is certainly one investment stable you have to be able to offer clients.
Mark Dampier: Frankly, I can see little point in more so-called supermarket platforms being launched, particularly if they miss some of the major groups. Indeed, the present well known supermarkets – Cofunds and Fidelity – are still no more than corner shops. They do not have every unit trust on, they have no investment trusts and do not deal with shares. Therefore, I find it hard to see why clients should buy from what effectively are corner shops where the shelves are only half full. A self-select Isa is all you need.
Paul Illot: Multi-manager platforms should aim to incorporate as many fund management groups as possible. IFAs and their clients want access to all the major groups and, in the long term, I do not think Old Mutual's multi-manager platform can afford to do without the likes of Fidelity and the Cofunds partners.
Old Mutual has been reinventing itself over the last year or so with the recruitment of highly respected fund managers such as Ashton Bradbury and Adrian Farthing. Although this has gone a long way to raising the profile of the company as a retail investment house, I feel it has not yet gone far enough to elevate the company in the eyes of IFAs to the degree that it can compete with the likes of Skandia in the multi-manager arena.
The venture capital trust market has recently been inundated with announcements of forthcoming autumn launches, with target subscriptions totalling more than £250m already. Do you believe demand will meet the supply?
Alan Adam: I am not convinced all VCT launches will meet their targets, particularly given recent events. Clients are now realising that VCTs give tax benefits for a greater level of risk. Some are realising that having to pay capital gains tax is sometimes a nice problem to have, rather than losing capital to defer paying CGT. Also, the markets of late have not encouraged clients to maximise Isas or the investments which use their CGT allowances, so these investment vehicles will be used before VCTs are applicable.
Mark Dampier: Given the present extremely poor conditions in the retail market, I would be most surprised if a £250m target is met. However, this time round, there are some far better quality VCTs available, in particular, the generalist VCTs. A prime example must be the Matrix Unicorn VCT run by the dream team of Peter Webb, John McClure and Ian Harwood.
Paul Illot: We have certainly needed VCTs for some of our clients over the last couple of months or so but have not felt particularly compelled to use any of those that were available. We will definitely be looking to use VCTs once we can see a greater number of issues from which to cherrypick. On balance, I do think demand will be sufficient to soak up supply. Inflows of new business into investment funds has been understandably slow across the industry in recent months, with many clients preferring to hold cash. This means there will be pent-up demand for investment funds, including VCTs.
The fund of hedge funds market has fallen quiet after a few months in the limelight earlier this year. Given current market conditions, is now the time to reconsider absolute return funds for growth investors?
Alan Adam: The hedge fund approach is one I feel is definitely here to stay, irrespective of market conditions. Rory Powe is to run such a fund at Invesco and Roger Guy at Gartmore is running a hedge fund. When you have quality fund managers such as these two running hedge funds, it has to be of interest to clients.
Mark Dampier: I am sure many hedge funds will have proved their worth over September. Their lack of correlation to major market moves is ideal. However, there needs to be far greater understanding both from IFAs and clients on hedge funds. In addition, most are unauthorised, highly complex and a total nightmare to deal with. Until these barriers are taken down, the hedge fund market will remain mainly for a few well-off investors and will never be a mass-market product. Of course, if they were a mass-market product, they would cease to work so efficiently.
Paul Illot: It is going to take some time before absolute return funds start to take off in the UK. In the meantime, the FSA has had concerns over highly leveraged hedge funds and their potential to destabilise small economies and we therefore remain cautious. While noting that hedge funds can be used to reduce rather than intensify risk, it is also worth remembering there are a number of investment trusts run on an absolute return basis, some of which currently have very substantial cash weightings. In today's market and for relatively cautious stockmarket investors, I prefer the investment trust route.
Alan Adam, consultant, Alan Adam Asset Management
Mark Dampier,head of research,Hargreaves Lansdown
Paul Illot, senior investment adviser, Bates Investment