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Fine time to de-risk

Were there any real surprises from the Chancellor’s pre-Budget statement last week? The ending of the alternative secured pension loophole was well signalled.

While confirming the permanent status of individual savings accounts appears little more than common sense and was also an expected change, given Ed Balls’ earlier comments.

It was disappointing that the opportunity was not taken to raise the contribution level but, in truth, that was hardly a surprise either.

Optimistic forecasts for our economy were also to be expected, though a rise of 2.75 per cent in GDP is merely respectable. But will it be sufficient to fund the rise in government expenditure? It may be Mr Brown will be handing over the reins at the Treasury at just the right moment as his successor will have to pick up the pieces from a less than prudent period of economic management.

Overall our domestic stock market has weathered the statement well. The most important recent development, though, has been across the pond. The weakness of the dollar and deteriorating economic picture has been responsible for some of the earlier consolidation in the FTSE 100 Index. Some 30 per cent of the sales of the constituent companies go to the US. Not only is the rise in sterling against the dollar making exporting more difficult, but signs are emerging that US consumer are pulling their horns in.

Results from Toll Brothers – America’s largest builder of luxury homes – disclosed how conditions had worsened. More worrying is a rise in mortgage repossessions. One business – with the unfortunate name of Ownit Mortgage Solutions – has ceased trading. Unsurprisingly, wags in the US now refer to it as “Disownit Mortgage”.

The sharp drop in consumer durable goods sales suggests the malaise is spreading. That said the Fed chairman, Ben Bernanke, sounded remarkably upbeat in his most recent statement on how the economy was faring. Growth modestly below trend was his take.

What it means for investors is harder to determine. More than a few fund managers have been more cautious but valuation levels do not look overstretched. This could change if corporate profitability collapsed but that is unlikely. The best advice is not to stick your neck out. If this sounds like sitting on the fence, it is worth looking at what has happened to various segments of the market this year.

Large cap stocks have once again trailed smaller companions, while a number of the racier markets have demonstrated a growing appetite for risk. What were the leading unit trust performers in the first 11 months of the year? Russia and China – with two specialist Neptune funds that secured first and second places in the allcomers tables. For my money I would now be de-risking my portfolio and seeking some value in the positions I take. The future is never certain and there are sufficient problems to justify caution.

Brian Tora ( is principal of The Tora Partnership.


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