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Expect the unexpected

Brian Tora

The first Cofunds Investment Conference of 2011 departed a little from the formula that has been applied for the four years in which it has been running. I became involved with this project at the end of 2006 and the first conferences were all based in London. The very first suffered from timing as after all the arrangements were made, the Chancellor of the Exchequer chose the same day to deliver his Budget.

After two or more years of taking the concept round the country, Cofunds returned to the elegant surroundings of the Merchant Taylors’ Hall in Threadneedle Street for its first-ever Economic Forum. As well as six erudite and interesting fund managers, Stephanie Flanders was the keynote speaker. As the BBC’s economics editor, she seemed perfectly placed to summarise the condition and prospects of our country.

Since forecasting cannot be precise, there were plenty of health warnings – from me as conference chairman and from Stephanie. She remarked that any downbeat comments should be considered in the context of David Cameron’s contention that BBC now stands for the British Broadcasting Cutbacks, given its coverage of Government efforts to trim the national purse.

It was a mixed picture she painted. She was able to point to positives in our current predicament but the real danger, in her opinion, lies in an anaemic recovery taking place that fails to mop up surplus capacity in our economy. Our level of indebtedness is certainly a problem and while George Osborne’s efforts at rapid reduction may prove the best medicine, we will only know for sure after the event.

But that is the problem with forecasting. Stating a likely outcome with conviction is all very well but what actually happens may be very different. Did the rocket scientists who bundled poor loans into triple-A packages really understand the consequen-ces of their actions? Was the explosion of split-level, self-invested trusts a cynical attempt to gather revenue-producing assets or a failure to appreciate the risks?

This may seem like a homily for simpler, easier to understand investment products (and there is nothing wrong with that) but it really serves to underscore the fact that certainty in asset performance does not exist. Multi-managers will argue for assembling a range of non-correlated assets, yet, as more than one speaker pointed out, even this cannot be relied upon in times of financial stress.

If the economic overview was too broadly painted to deliver a particular conclusion – sensible, if my experience is anything to go by – the participating fund managers delivered an altogether more robust opinion on what to expect.

With a wide-ranging programme extending from bonds to equities, commodities to properties and approaches encompassing absolute return and manager of managers, little ground was left uncovered.

Fund managers have a natural tendency to talk their own book but the presentations delivered last week were measured and realistic. No one ducked the problems – and with continuing issues in the Middle East and North Africa still festering, there is clear evidence that the unexpected and unwelcome still lurks – but arguments in favour of all asset classes and each approach could be made.

At the core of the belief that cash is not the place to be is inflation. All – including Ms Flanders – touched on the risks associated with a rising cost of living but the reality is that inflation favours financial assets. And nobody really expects it to get out of hand. It is hard to be overly positive with so much going on in an increasingly global village but attendees at the Cofunds Economic Forum could take comfort from the views expressed.

Brian Tora is an associate with investment managers JM Finn & Co

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