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Investment view

I hesitate to mention the name Roddy Kohn in this column – not least because he does not mention me in the one he writes for an altogether inferior publication. However, Roddy was responsible for chairing the question and answer panel on which I sat at the first of this year&#39s AITC Forums in London last week.

He asked how many of the IFAs present were novice investors attending the forum to learn more about investment trusts. About a quarter of the audience stood up to indicate they fell into this camp. How many were experienced investment advisers, well versed in the intricacies of even split level trusts, he continued. A similar number rose to their feet. What about the other 50 per cent of the audience, we both wondered. Were they not interested in investment matters – in which case, why were they there – or were they simply too shy to disclose their hand? I doubt we shall ever know.

It has been a difficult year for advisers – a difficult three or four years, for that matter. Even perceived safe havens have turned into minefields for investors. At least last week&#39s audience had a much greater understanding of the issues that govern the performance of markets and individual asset classes today than in the past. I still remember those early initiatives when it was clear that many advisers had little concept of what differentiated an investment trust from a unit trust. Of more concern to these advisers was what might spring share prices out of their present doldrums and whether or not fixed-interest securities were still the place to be.

The Governor of the Bank of England clearly feels the worst is behind us. Perhaps he was merely warming us up to the chance of the next change in interest rates being up but that would seem surprising, given that fourth-quarter GDP figures for the UK were revised downward last week, suggesting that our economy had hit the buffers as 2001 drew to a close. Not so the US, though. Its revisions to already published economic data suggests that the American consumer, far from entering hibernation following the tragic events of September 11, helped bail out an economy that had been stagnating for too long. Not that there is yet any promise of a robust recovery. It still seems that sufficient nervousness remains to keep markets subdued.

Much present concern surrounds stock-specific risk. The fact that the unexpected is punished so vigorously has alarmed investors – both professional and private. Enron may be an exceptional example but Marconi is also a household name where value attrition was considerable. Even seemingly solid stocks such as Royal & Sun Alliance find themselves languishing at a five-year low. I feel I should become more optimistic but every time I consider the market poised to breakout on the up side, sellers emerge. About the only comfort that exists is that there are still plenty of buyers as the FTSE 100 index edges towards 5,000. Of more concern, though, is that this seemingly flat index performance conceals some massive variations in the performance of individual stocks, which in turn underlines why investors remain nervous.

The answer would seem to be for more money to flow into collective investments, thus spreading risk. Yet sales figures suggest that private investors are just as nervous over buying into unit trusts as they are over committing themselves to individual stocks so we are back to the grand old catch 22 that obtains at the bottom of every bear market. Private investors will not buy because the market is not rising. The market is not going up because private investors are not buying. Of course, it will rise eventually and private investors will probably chase it too late as usual. Maybe now is the time to buy after all.

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