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Farrow’s view

Apparently, there is growing concern among IFAs that a constant drip of negative coverage of poorly-performing funds such as BestInvest’s Spot the Dog report, deters consumers from investing. I doubt that it does.

The guides have been kicking around for years and did not seem to do any harm during the bumper years at the height of the technology boom. The stockmarket falling by 50 per cent and wiping millions of pounds off shares was the killer blow. Period.

Selling the equity story has been a thankless task for fund managers and IFAs alike over the past few years and it was of little surprise that the latest IMA statistics show that sales plunged by 40-odd per cent last year. Hopefully, that is as low as it will go.

I have a sneaking suspicion that there is a sea change ahead and the fortunes of fund managers – dud funds being around or not – are about to reverse.

Investors have always been fickle. Sure, many people probably do not realise that the FTSE 100 has risen by 50 per cent since it slumped to below 3,300 in March 2003 and if they failed to realise the FTSE recovery, then they certainly will have no idea that the FTSE 250 index has soared to a record high or that all but two UK equity funds delivered a positive return last year.

But with enough news-paper headlines and coverage on the TV, it will gradually dawn on people that they are missing out making a buck or two. It is just a shame that they have missed out already.

There is no doubt that the market falls that kicked off in March 2000 and carried on for three years left deep scars on a generation of investors. There is good reason why many decided to leave equities well alone. But let us not forget that they had an alternative to the stockmarket – namely property. Not any more.

It has been well documen-ted that the housing market has slowed alarmingly – the recent figures from the Land Registry showed that house prices across England and Wales fell by 2.7 per cent in the final quarter of last year as the value of homes fell in seven out of 10 regions.

Tellingly, the deterioration in market conditions was also highlighted by a drop of more than a quarter in the number of houses changing hands logged by the registry. Across England and Wales, the volume of transactions fell from 309,101 in the third quarter to 229,7245 in the following three months. Transactions dropped by more than a fifth in every region and in London they plunged by 29.4 per cent.

At the coalface, so to speak, Rightmove, the property website, says estate agents inc-reased asking prices by an average of 2,000 in January. This has little to do with confidence returning to the market and more to do with rookie agents pressing the panic button. In a desperate attempt to shore up ailing sales figures, they are taking on as many properties as they can and increasing the price.

Within the last two months, around 50 estate agents have been forced to shut up shop. More will undoubtedly follow as revenues continue to slide as buyers simply wait for house prices to fall further.

Property, not so long ago seen as the panacea of investments, is looking increasingly iffy but equities are once again starting to showcase their attractions.

Corporate activity is hotting up and valuations are reasonable. Fund managers admit that the US budget deficit and falling dollar could be problematic but on the whole, the outlook looks promising.

Interest rates remain historically low, inflation is benign and corporate profitability is improving. Talking to one fund manager over coffee the other week, he gleefully mentioned that his fund had gone up every day in January. He would not have been alone.

If markets and funds continue to produce the stellar performance of the last few months, people will not stay on the sidelines for too long – it is simply not human nature to watch other people make money.

There are signs that mom-entum is gathering – a major fund group could not help to mention that net inflows in 2005 have almost surpassed last year’s as a whole. There is a very gentle breeze picking up in the sails of the fund arena and it could be about to turn a corner but, unlike Ellen Mac-Arthur, do not expect any records this year, next year or for the matter, the year after that.

Paul Farrow is a personal finance reporter at The Sunday Telegraph


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