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Investment view

There is no clear message for investors yet in 2004. Such preliminary economic information as trickles into the marketplace has failed to demonstrate any definable trend. Last week, the Office of National Statistics suggested that manufacturers were succeeding in raising prices but then we discovered that manufacturing production, against expectations, had fallen during November.

As for company statements, while Tesco and Wm Morrison clearly had a storming time over Christmas, Sainsbury is continuing to lose ground. In clothing, Next has got it right but Marks & Spencer is falling further behind. You pays your money, you makes your choice. Hopefully, as the year progresses, we will achieve a better feel for what is really happening. Certainly, the next few weeks will see a plethora of company results being released.

We will also soon be assessing what is likely to happen to interest rates. A report suggesting continued buoyancy in the housing market and expectations of a strong performance from the high street pointed to a rise, then more figures indicating that the rise in annual earnings was slowing and that people were working fewer hours provided the Bank of England&#39s monetary policy committee with material for significant debate. It is just as difficult to know what to do for the best if you are managing clients&#39 money.

The problems facing advisers were aired at a recent meeting with the head of one of our bigger national IFAs. He made the observation, not without justification, that so much effort went into investment process these days that we are in danger of regressing to a moderate average, with little distinguishing features emerging to separate the bulk of managers from the herd.

In some ways, this is inevitable. Not only has the business of running money become more professional – with the bulk of the stockmarket controlled by full-time managers rather than being at the whim of a private investor – but the long bear market has made the industry more focused on risk management. This is not necessarily a bad thing but it hardly makes the choice of where to invest any easier.

This problem has been around for some time. An investment management company delivering superior performance to its peers encourages a flow of funds from investors. With the assets under management increasing, implementing a process as successfully as at the outset becomes more difficult. Managers, frustrated at the growing mediocrity of their performance figures, may then be tempted to leave to start their own investment boutique. Sounds familiar? It has been happening all through my life in the City and will doubtless remain a feature for the foreseeable future.

This process need not be inevitable, though. It was interesting to read last week that Anthony Bolton is to retain management of the Fidelity special situations fund. I was recently looking at whether there was any correlation between the size of a unit trust and its ability to outperform and was struck by the fact that, of the biggest retail funds, only Fidelity special situations had delivered consistent, above average performance. The ability to continue to demonstrate that you can stay ahead of the crowd, despite having vast sums under management which must restrict your manoeuvrability, is one of the greatest achievements possible in this industry.

I shall be watching 2004 – the year in which I clock up 41 years of service in this great industry of ours – with particular interest. How should my pension fund be invested? Has the equity market over-reached itself by delivering double-digit returns for 2003? Will the global recovery maintain its momentum? Will more accounting scandals emerge?

Aside from what may have happened to the missing money in Parmalat and whether Adecco was accounting properly, there has been the successful action against Morgan Stanley&#39s analysts by LVMH and a similar attempt by Sodexho to claim compensation for research reports that were less than flattering. I am reminded of a comment by the International Accounting Standards Authority chairman David Tweedie that accounts were like a haggis. If you knew what went into either, you would not touch them with a bargepole. That is what I like about this business. In the end, events are never as predictable as people would have you believe.


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