Brian Tora’s Investment View
Talking about the cult of the equity remaining in intensive care, as I was last week, I was struck by two stories that crossed my desk in the days following my somewhat downbeat assessment of where we are going.
First came the latest edition of the Investment Management Review, a quarterly publication issued by the Chartered Institute of Securities & Investment (as I must now remember to call them).
This publication condenses recent articles, reports or research documents that have a relevance to the investment management industry – a sort of Reader’s Digest for fund managers and other interested parties. Drawing on a piece of research by the eminent trio from the London Business School of Dimson, Marsh and Staunton, Tony Jackson – a regular columnist in the Financial Times – concluded that “the cult of the equity is pretty fragile”.
Such was the power of the argument that the IMR’s editor chose to lead on the piece, under the headline Will the cult of the equity die?
Pretty strong stuff, you may think, or there again, perhaps it is just taking a sensational story to feature at the front of the magazine.
When the second story came out – the news that vicars’ pensions were under threat because the Church had committed all their pension money to equities – I sensed a pattern emerging.
What good fortune, therefore, that I had been asked to chair a roundtable discussion on the future of equities organised by Cofunds.
With such equity stalwarts as Schroders’ Richard Buxton and Chris Burvill from Gartmore present, I felt certain there would be some lively debate. I was not disappointed.
Remarkably, the argument was much more evenly balanced than one might have supposed, given all five participants had their flags nailed, at least partially, to the cult of the equity.
Starting with the macro position, Richard Buxton argued that only equities give you the chance of matching investment performance to economic growth. The problem is, he admitted, that good performance comes in waves lasting for some time, leaving long periods of disappointing growth. But over the long run equities deliver a total return that, adjusted for inflation, knock bonds and cash into a cocked hat.
Property and commodities might prove better short-term inflation hedges, but equities reflect real growth.
The indices, of course, suggest we are in one of those periods when markets fail to make progress. But as OBSR’s Richard Romer-Lee argued, these are just the conditions when good stockpickers come into their own.
He praised Buxton’s high-conviction, unconstrained (by benchmark) approach that has rewarded investors handsomely. And as Gary Potter from Thames River added, you can not add value in these markets simply by indexing.
I came away from the debate with the distinct impression that yet more change is to be expected in the investment management space. How appropriate, with RDR looming.
Short-term prospects are clouded by indifferent economic news and a rally that has brought shares to levels that, as Chris Burvill admitted, are leading him to rebalance the equity portion of his cautious-managed mandate. But active managers are alive and well, and determined to carry the flag for the cult of the equity forward.
Brian Tora (brian.tora@ centaur.co.uk) is principal of the Tora Partnership