The stockmarket tipsters are out in force – after all, it is the start of a new year and therefore a new dawn.
Many are warning investors to expect modest returns in the year ahead just as they are finally coming in from the cold. The everyday investor has woken up to the fact that share prices are rising long after the professionals or the savvy investors have already made a killing.
The FTSE 100 closed the year above the 6,000 level – its fourth positive year in a row and public confidence is back. Not to the dizzy heights of the technology boom but they are buying funds again.
It is also the time of year when fund managers are gearing up to promote their funds for the end of the tax year push. As is the norm, the fear is that investors will simply chase performance and so the big sellers will be emerging market funds or natural resource funds that delivered stonking returns last year. Investors are a fickle bunch and act with boring predictability.
But second-guessing is not easy, whether you are a professional or a novice. You only have to look at what the experts were punting 12 months ago to see why. A huge favourite among fund managers and advisers in January 2005 was Japan. Here are just a few of snippets that I dug out from the archives.
Gartmore head of European retail Paul Feeney reckoned the top-performing country would be Japan despite doing well in 2005 because “we are seeing some solid evidence that the economy is coming out of recession”.
Paul Ilott at Bates Investment said Legg Mason Japan Equity might be “just the sort of fund that might do well in 2006”. And he was not alone. Juliet Schooling of Chelsea Financial Services also tipped Legg Mason Japan equity because finally there seems to be “a genuine turn-round in the Japanese economy and this fund, managed by Hideo Shiozumi, should be best poised to capitalise on that trend”.
How wrong they were. Take a look at the fund performance tables and you will see that all but a dozen of the bottom 75 funds out a fund universe of 1,629 measured by Standard & Poor’s are Japan funds. You have probably guessed it by now but the worst performer was Legg Mason Japan equity, having fallen by almost 50 per cent. Not one dedicated Japan fund managed to deliver a positive return in the calendar year while most fell by more than 25 per cent.
To be fair to Feeney et al, they were just three of many I could I have selected from the archives that were tipping Japan as a success for 2006. Perhaps, they like many others went a year too early? Certainly, a few people I have spoken to are beginning to top up their Japan exposure following the recent fall in share values. But it is a tough call.
One certainly wonders how long the Eastern European resurgence, driven by the Russian powerhouse, can go on? Understandably, many pundits are concerned that its over-reliance on oil could be Russia’s downfall. But this is not the first January that Russia has been tipped to falter and those people have ignored the bears in 2004 and 2005 have been rewarded. But can this performance go on for yet another year? Do investors hold off (again) and wait for markets to correct or do they invest now? Sod’s law says they lose out either way.
There is always another option of course – a regular savings plan. These plans are overlooked by most investors. According to the latest figures from the Investment Management Association, there are 17.2 million unit trust and Oeic accounts in existence, yet only 1.6 million are regular savings plans. But drip-feeding is a worthy method if you are nervous but still want exposure to a potentially volatile region such as Japan or Russia.
We all know that tens of thousands of people piled into the market just before the tech bubble burst in early 2000, sending global share prices plummeting. If you had put a lump sum of 7,000 in Close FTSE techMark at the end of 1999, your fund would now be worth a paltry 2,747. On the other hand, if you had drip-fed 83.33 a month over the same period (a total outlay of 7,000), into the same fund it would be worth 8,441 today. An advert for regular savings if ever I saw one.
Paul Farrow is money editor at the Sunday TelegraphMoney Marketing
50 Poland Street, London W1F 7AX