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Investment view

Here we are, just a month into the New Year and already my diary is filling up. Not, you understand, with speaking engagements (there are a few but 2004 is disappointingly low so far), lunches (a new, fitter regime demands that no lunches are booked before February) or corporate events (we need the index back above 6,000 before the box at Cheltenham returns).

Instead, it is other people&#39s invitations that are finding their way into my diary. Invitations to learn how other managers view the state of world markets. Very interesting they will be, too, I feel sure. First off was Henderson Global Investors&#39 take on the world in general and bonds in particular. This is a regular feature that tours the country. The premier performance was held at that bastion of the investment world in the Square Mile, The City Club.

I confess to being gently confused as to where Henderson presently sits in the corporate map of UK financial services. I know AMP cast the firm adrift after a marriage that lasted barely five years – probably par for the course for both corporate and personal marital relations these days. One of the great names of UK fund management now finds itself part of HHG plc, with listings on both the UK and Australian stockmarkets. I am all in favour of acronyms but I feel one that appears more like an exclamation from a dying villain in a Marvel comic needs explaining.

It would be wrong to draw too many conclusions from this, my first outing this year to hear how others in the investment world think, but there were a number of interesting messages. Particularly significant was the fact that nearly half of Henderson&#39s assets under management were located in the fixed income arena. The company unsurprisingly promoted this as a plus.

It is confirmation that the world really has changed and that the investment map is looking very different, with probably little chance of returning to the pre-technology bubble way of doing things.

Henderson is not alone in promoting the view that the low inflation world is here to stay. Low inflation does not, of course, mean that interest rates cannot go up. Nevertheless, it was refreshing to find strategy analyst Katie Pybus (who confessed to being the same age as Alan Greenspan&#39s current wife while clearly being young enough to be his grand-daughter – something which says more about him than her) holding similar views to our chief economist on the likely direction of interest rates.

Indeed, she referred to the activity in the interest rate futures market, which indicated a rise to 5 per cent in UK base rates by the year-end as “bonkers”. Colourful – but understandable if, as she expects, any rises are limited.

The case for bonds, put forward by John Pattullo, was arguably more contentious. For a start, he acknowledged that the easy wins were behind us. I have nothing against a manager being honest (which is certainly not a given these days) but I am concerned that the expectation that inflation will remain subdued indefinitely is a little hopeful. Given that one of the dark clouds overhanging the investment market at present is the twin deficit problem in the US (something put into sharp context by the information that there are well in excess of one billion credit cards in circulation in the US, with the average debt per family running into thousands of dollars), you cannot rule out a dose of inflation being encouraged to solve some of these problems.

No one that I have read or heard is suggesting a return to the double-digit inflation period that dogged us in the past but perhaps we could see a tick upwards, particularly if the world economy builds up speed. That would not be good for interest rates and thus bonds. We shall have to wait and see but in the meantime the active management of fixed-income portfolios makes good sense.

Over the last two decades, I have watched the investment management industry mature. Competition for investors&#39 money is now intense. How the economic statistics and corporate numbers are interpreted has become crucial. No more can we rely on an inefficient market allowing those applying a little thought and discipline to prosper. I shall be paying particular attention to what this new generation of investment managers will be saying as the year unwinds. Perhaps even an old dog like me will learn new tricks.


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