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Investment view

Last week saw the publication of trading statements from two companies in the retail sector which demonstrated the diversity of performance being delivered to shareholders. Marks & Spencer disclosed that, since it had succeeded in seeing off predator Philip Green, sales had disappointed. The 10-week figures to mid-September showed falls in all sectors. As if that was not bad enough, its statement came out on the same day that Tesco announced record profits.

It was not just the confession that all was not well in the various markets served by M&S that upset shareholders. Part of the defence to the unwanted bid rested upon the ability of the company to return value to investors through share buybacks. The terms of these buybacks were announced but the price at which they would be executed turned out to be well below the value of the Philip Green bid – as much as 17 per cent lower at the bottom end of the range. There will be those who wish they had had a real opportunity to sell out when the opportunity originally arose.

If the coincidence of these two companies reporting on the same day demonstrates anything, it is that you have to work hard to make the best of your investment opportunities. True, the UK market has been in better form recently. A two-year high for share prices has been achieved. From languishing within a narrow trading range for the best part of a year, the index is indicating that it is possible to break out on the upside. Perhaps some of those forecasts for the FTSE 100 index at the year-end will prove achievable.

Not that the UK&#39s headline index should be viewed as the only game in town. The mid-250 index has consistently out-performed, reminding us that smaller companies do tend to deliver better returns over the long term and that the 100 index is constrained by the dominance of specific sectors. Britain&#39s mid-cap stocks also appear less volatile than the smaller end of the market.

All this highlights the importance of good stock selection. Following the best stockpickers has become an industry preoccupation. Reading what the multi-managers are up to emphasises how swiftly some fund managers can fall from grace, resulting in wholesale redemptions. Fund managers, the golden years for whom ended, by and large, with the advent of the bear market that commenced at the start of the new millennium, now need to remain on their mettle to ensure they retain the loyalty of their investors. Not all do, of course.

Attending a seminar held by a multi-manager recently, I was advised that, at the start of the year, the average forecast for the FTSE 100 index for the end of 2004 was 4,950. I thought pundits had been more cautious. After all, for this to happen, the market still has to make up ground of over 7 per cent during the last quarter.

We operate in an uncertain environment. Last week&#39s US rate rise may have been reasonably forecastable but I wonder how certain we should be that rates will rise further at home. Most expect another 0.5 per cent on interest rates but house prices are now pausing in their progress and bond markets suggest the peak is close. Perhaps this more optimistic market does have it right after all. If so, the forecasters – for once – will be in the pound seats. However, I suspect that God is still on the side of the stockpickers if Tesco and M&S are anything to go by.


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