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Heights of sophistication

I am trying not to take this personally but here am I trying to stimulate a debate about whether or not we have of late been enjoying a bear market rally – one that will run out of steam and hit new lows – or the start of a new bull market and apparently there is no debate to be had at all.

For while last week I was, although I say it myself, courageously endorsing the answer “it depends”, the good, good people of 1st – The Exchange were polling IFAs along the very same lines and coming to the conclusion that it did not really depend at all.

Research by the curiously named technology solutions provider and its even more curiously placed hyphen found that no fewer than three-quarters of the 254 advisers polled felt that the recent strong stock-market performance amounted to nothing more than a bear market rally.

At the same time, seven out of 10 advisers reckoned that these gains had been principally driven by the reallocation of previously invested cash into equities from other asset classes rather than any new money coming in from private investors.

What’s more, it would appear that this lack of confidence among private investors is supported by the IFAs themselves, since almost two-fifths do not see a bull run in equities before next spring while only a slightly smaller proportion do not expect such a run for another 18 months. Only a quarter of the advisers polled expect a recovery within the year.

So that’s me told, then. Except that First Hyphen added its own conclusion that: “Anecdotal evidence would suggest that this reallocation of capital is taking place among more sophisticated institutional investors rather than private investors who remain exceedingly cautious about where they invest their money.”

Fair enough – except isn’t the thing about more sophisticated institutional investors that, well, they are more sophisticated? And if they are switching into equities, is there not at least a possibility that they know what they are doing?

Yes, I know that second question will inevitably have provoked many a snort of derision on the back of the evidence of the last few years – and indeed there are plenty of times that my view of every type of investor has been of their collectively showing all the discipline of a group of Sunny Delight-charged children running about a garden convinced they are superheroes because they have their anoraks on their heads.

Still, if we are crediting institutional investors with the description “more sophisticated”, should we not aspire to this blessed state rather than dismissing it as beyond the limits of our own superpowers? And if they are seeing signs that equities might not be such an awful place to be invested for a while, shouldn’t private investors and their advisers at least be assessing that possibility too?

That said – he weasels, preparing to execute some fancy footwork – the bears have certainly seemed more vociferous in recent days. For example, one internal briefing note, which was penned by a fairly important strategist and which I probably should not have seen, is witheringly dismissive of anyone who expects a V-shaped recovery, predicts further falls, well, around about now and confidently expects the “real” sell-off to take place either at the end of the third quarter of this year or the start of the fourth.

And if you would prefer to put a name to a grimace, I can offer you this morsel from the latest, lengthy communication from Jeremy Grantham, top man at Boston-based investment manager GMO, who views a true lasting bull market at this particular point in time as “most unlikely”.

He continues: “A large rally here is far more likely to prove a last hurrah…a codicil on the great bullishness we have had since the early 90s or, even in some respects, since the early 80s. The rally, if it occurs, will set us up for a long, drawn-out disappointment not only in the economy but also in the stockmarkets of the developed world.”

So there you have it and, if you have been feeling bearish of late, I trust this support from such an illustrious source has, as it were, brightened your day. After all, I am reliably informed that misery loves company.

Julian Marr is editorial director of marketing-hub.co.uk

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