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Investment View

It is that time when fund managers try to balance the books for the year-end while commentators look back at what has happened and comprehensively ignore what they said 12 months previously. Neither group will be sorry to see the year behind them. It has been difficult for investors and forecasters alike. All will be hoping that 2001 will prove more profitable. Even so, there is no consensus view among market watchers, some believing that you should not touch new economy stocks with a barge pole, while others believe that value has at last returned to parts of the market.

Among the more interesting items landing on my desk have been offerings from Deutsche Bank and Global Asset Management in the field of alternative investment strategies. Deutsche Bank is establishing a fund of hedge funds, while Gam has launched a multi-manager product in private equity and is now organising a second. It is not hard to see why these products have been launched. These markets are difficult to access unless you are seriously wealthy. Yet with returns from conventional markets uncertain, there are considerable attractions attached to moving into areas where high growth opportunities exist.

But hedge funds and private equity partnerships are high risk. Deutsche Bank points to the fact that some hedge funds have had lengthy periods when they have been capable of delivering considerable returns. The idea behind a multi-manager fund is to try to avoid the torpedoes although, inevitably, it means returns will be more modest. There can be little doubt that the returns from both private equity and hedge fund portfolios will overall have been as mixed as those delivered by the market as a whole.

During a year when a growing emphasis on sector and theme investing has obscured the results achieved by other segments of the market, it is useful to look at how smaller companies have performed. It seems the smaller the size of the company, the better your performance will have been during the year. The FTSE was down by 10 per cent towards the end of last week but the Mid-250 was modestly up, while the Small Cap delivered a rise of more than 5 per cent. But, of course, overall statistics conceal a wide range of performance.

Take the Mid250 index. Heading the list in performance terms is Cambridge Antibody, which rose by over 400 per cent during the first 11 or so months of the year. On the other hand, Atlantic Telecom and Thus have had nearly 85 per cent of their value wiped out. No wonder people are nervous of the new economy stocks. Indeed, exclude the TMT sectors and the market has not done at all badly during the year.

I was asked recently to comment on a company of which I had never heard. It was with some surprise that I discovered Enodis was not involved in new technology but was once called Beresford and was known for its involvement in the sugar industry. It had retained an association with food, having reshaped itself into a catering equipment manufacturer. Its record in terms of profit generation was outstanding, yet the shares halved since the summer and stood on a near 7 per cent yield and a price/earnings multiple in single figures. Why, given the impressive management period, should it have suffered this downgrading? Apparently, it had indica ted that it would no longer be able to grow at a compound 25 per cent because of the slowdown in the US economy so the shares were savaged. What a strange market in which we operate.

At least we know that investment requires thought and discipline. By the end of last year, it was looking too easy. Professional investors and their clients have been reminded that there is no God-given right to make money in markets.


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