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Investment view

Last week contained as rich and varied a diet for we City types as any recently. The Unilever Merrill Lynch Investment Management court case was settled without the need of Mr Justice Colman having to draft a judgement on a battle that, in the end, looked as if it contributed few favours to either side.

Stockmarkets on both sides of the Atlantic resumed their rally, with some quite positive reports coming out regarding certain sectors of the market, most notably by Morgan Stanley on the insurance sector, to many observers&#39 surprise.

I am told that numbers were down at Sofa&#39s annual bash although it seemed just as busy as usual to me. Of course, some advisers were probably heavily occupied back at base ensuring that their systems were fully compliant with N2, giving them no time to attend. My session was well attended, though. Much of the interest appeared to be generated because of the desire of financial advisers to understand more about the investment process. Very laudable I am sure and not unconnected to the new regulatory regime in which we all now have to operate.

In essence, anything that advances the cause of professionalism in our industry should be applauded. But the trouble with the investment world is that there is as much art as science about the business of managing money. This became clear as the Unilever/Merrill Lynch case unfolded. Mercury Asset Management (as the company was called during the period when the alleged underperformance took place) had established a reputation as one of the most professional of the British fund management groups at a time when it was the Americans who appeared to have a monopoly on a disciplined approach.

Yet Mercury prided itself also on employing managers with flair and judgement and allowing them considerable freedom to get on with the job. The conflicts that this could create were made evident by the court case and time will tell whether an out of court settlement will make it any easier for other disgruntled pension fund trustees to take action against those managers who have had charge of their assets. In the meantime, firms will be furiously reviewing their procedures to ensure they are not vulnerable to claims that no proper process existed to ensure managers delivered what was promised.

It is hard to see how a more prescriptive regime will influence markets, other, perhaps, than driving more money into index-tracking vehicles and adding to elements of the volatility that is now such an important feature of the securities industry. Most of the indicators that were coming out last week added to the credibility of the recovery. The consumer clearly has not lost heart in this country. The high street still appears to be prospering, even if competition continues to keep pricing power away from the retailers.

The consumer is viewed as of crucial importance to the health of an economy and thus to the stockmarket. However, recent research from those worthy economists at Lombard Street has poured cold water on this proposition. Demographics are important, they agree, but the demographic shift may not favour equities in the longer term. They are particularly concerned over Europe, where the ageing process appears to be taking place faster than in the US.

The worry to equity investors has always been that at some stage there will be more people needing to draw upon their savings pot than able to contribute. I expect this to be an increasingly important debate as time goes on. In the meantime, it will be money that drives this market as much as anything and there are still plenty of people out there afraid that they might miss the boat.


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