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Equities back on the march

Gregor Watt rounds up the year in investment

2009 was not a tale of two halves but the year can be split neatly into two parts – before March and after March.

The first two months of the year saw equities continue the sharp slide that had started with the collapse of Lehman Brothers in September 2008.
From peak to trough, the FTSE 100 fell from 6,700 in October 2007 to a low of 3,460 in early March. But since that point, the UK and most of the world’s equity markets have recovered strongly. In late November the FTSE 100 was back up to almost 5,400 and although it has fallen slightly since then, most commentators expect to finish the year well above 5,000.

Some people thought that Fidelity fund guru Anthony Bolton’s prediction, given in December 2008, of a rally in early 2009 was overly optimistic but anyone acting on his speech to the National Association of Pension Funds in mid-March would be almost 50 per cent up.

But if the second part of the year was a good market for pretty much every asset, the first part was all about fixed income.

With interest rates hitting 0.5 per cent early in the year, investors were driven towards fixed income in an attempt to generate any form of income.
The huge volumes of retail money moving into gilts and corporate bonds early this year raised fears of a bubble being created.

Corporate bonds was the best-selling retail sector in 10 out of the last 12 months, according to the IMA, and although returns have tailed off in the later part of 2009, the sector is up by 17.7 per cent in the last year.

The price of many commodities recovered this year. Oil recovered some of ground lost in 2008. In early December, the price of Brent crude was
Most agricultural commodities are set to finish the year comfortably in positive territory and the price of many metals has shown strong gains.

Most OF the interest from retail investors has been focused on gold, which hit a record high of $1,200 an ounce in early December. Other metals, including silver and platinum, have also fared well and copper has seen its price increase by more than 100 per cent since the beginning of the year.

Property also re-emerged as an asset class of interest to retail investors in the second half of the year.

After two years of tumbling values of property funds, many fund managers predicted that the bottom had been reached and combined with very attractive yields some retail investors seemed willing to forgive the recent losses as property became the most popular retail sector for investors in October.

The Budget in April saw the Government announce significant increase in the Isa limit. The increase from £7,200 to £10,200 was brought into effect for people aged over 50 in October, with everyone else benefiting from the higher allowance from April 2010.

But it was not all plain sailing in the world of investment with two significant scandals breaking in 2009. The suspension and subsequent winding up of the Arch cru funds could see some investors lose significant sums of money when their investments are realised.

Structured investments also saw some problems this year when product distributor Keydata was wound up. Initial concern over the tax status of some of its Isa plans quickly developed into something much more serious when investors did not receive income payments as expected.

The company was placed in administration in June and declared in default by the FSCS in November but there is still uncertainty over whether all investors will be able claim for their lost investments.

The Dubai debt crisis also served as a warning that while many economies are well on their way to recovery, there is still bad news waiting to emerge.

Other notable moments of the year include the announcement of a return to active fund management for Fidelity’s Anthony Bolton, who will be moving to Hong Kong to manage a China fund.

This year also saw the return of William Littlewood to retail investment management with a new strategic assets fund launched by Artemis after a break of 10 years spent running a hedge fund.

After five years of dominating the retail markets, in terms of branding at least, 2009 also saw the announcement of the end of the New Star name. 2008 ended with the near collapse of New Star as it struggled with a crippling level of bank debt.

In January, Henderson Global investors agreed to buy the company for £115m, with the banks losing an estimated £150m in the deal. The merger of Henderson New Star was finalised in August but in October the company announced that the New Star name is to be dropped in early 2010.

But more than anything else, 2009 will be remembered as the year of quantitative easing. The programme of printing money, sorry, injecting liquidity and capital into the markets to stimulate the banks has so far seen £200bn injected into the economy by the Bank of England.

The effect of QE on bank lending has been negligible so far but with interest rates at their current historic low and with such large volumes of money being pushed into economy many investment commentators have said that unless the Bank of England’s timing is perfect, the story of this year could plot the course for next year and inflation could take over as the dominant force affecting UK investors.



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