Investment view

In those days when I wrote regularly to clients on investment matters, there were some commonly used terms and phrases that I would not use. My clients would not receive letters saying how much pleasure I had in enclosing a contract note or valuation or how very pleased I was to be sending our latest report. Receiving a cheque in payment of the annual management fee or reporting significant outperformance might give me pleasure but I doubt that the feeling was always mutual. To me, these were hackneyed phrases lacking sincerity.

I was reminded of this when, as a panel member at last week&#39s IFA Events Conference in London, I was asked if investment houses could stop writing to clients saying how pleased they were, while enclosing valuations showing yet further falls in their portfolio worth.

Old habits die hard, though, and phraseology like this – which has its origins in the more formal letter-writing styles of an earlier age – trip off the tongue all too easily. I still treasure the memory of receiving letters from Coutts Bank in connection with a titled client we shared that concluded, “we have the pleasure to remain, madam, your ladyship&#39s most obedient servants”. I wonder if they still write like that?

If using phrases without considering how they might read in context is something that we should guard against, so is putting our own interpretation on someone&#39s comments without understanding what they really mean. This also came up at the Question Time panel in connection with a newspaper interview with Nicola Horlick which included a reference to the possibility of the FTSE 100 index falling to 3,000. The panel was asked why they adopted an altogether more optimistic view of the market than the high-profile boss of SG Asset Management.

The IFA who asked the question had misinterpreted the interview. The reference to a market fall to 3,000 was in the context of a fund management industry that continued to operate as if the bull market had never ended. In a world where few new buyers of investment products are emerging and fee income has been savaged by a prolonged bear market, revenues have been sorely hit. Businesses not only need to take that into account but also need to manage themselves with a view to coping with any difficult times that might lie ahead. SG&#39s boss pointed to the leaner, meaner operation they had become and felt the industry should take note.

I have sympathy with her view. I also go along with her subsequent contention that the UK looks good value, particularly against bonds. Such a stance was inadvertently reinforced last week by the Chancellor announcing in his Autumn pre-Budget statement that borrowing would rise by £20bn. Moreover, by appointing Mervyn King as Sir Edward George&#39s replacement at the Bank of England, he put a floor under interest rates. Mervyn King is a noted hawk in this department.

Bond yields may have to rise. Gilt-edged stocks are driven by demand as well as the prevailing level of interest rates. Demand, particularly from the pension and life insurance industries, has been high over recent years and this, coupled with the fall in inflation and interest rates,created the prolonged bull market.

Further issuance will take the pressure off the demand side of the equation. The bull market in gilts may have come to an end but that is not to say that a bear market will begin.

Bumping into Threadneedle&#39s Dick Eats at the Money Marketing Christmas party last week, I was not surprised to learn that their corporate bond fund was a big seller and that bonds, as a proportion of assets under management, had assumed serious significance. You can rely on Joe Public to go on pouring money into an asset class at the top of the market and you cannot blame investment houses for selling what people want to buy. But is it right to ignore the equity market?

Since the beginning of October some poise has been regained and markets are weathering any bad news relatively well. December is traditionally a good month for equities, so perhaps we really should begin to hope the worst is behind us. But, like those who put their own interpretation on Nicola Horlick&#39s remarks, I suspect that too many investors are hearing but not listening.