View more on these topics

Investment view

What is an investment process? I know what you are thinking. If someone in the investment business needs to ask that particular question, should they really be managing money? Perhaps what I really mean is what do you understand by an investment process? It is, after all, a term that is increasingly common. Clearly, it means different things to different people.

What prompted me to reflect on the meaning of an investment process was an internal seminar designed to explain how the output of our research department should be used in portfolio construction. It may not sound the most riveting way of spending an hour but it certainly brought home how much the marketplace has changed over recent years. If the bear market has achieved anything, it has ensured that portfolio managers define the likely outcome for an investment mandate more precisely.

In the end, there is a great deal of subjectivity in investment management. It is all about exercising judgement. To make the best of your decision-taking opportunities, you need sound information – hence, the need to understand how the research department works. But in a world where the customer is increasingly sceptical and unlikely to tolerate poor delivery, providers need to be certain that their processes will stand up to scrutiny and are observed by the people charged with conducting portfolio management.

Explaining to audiences of both investors and advisers that the investment world remains a less friendly pond in which to fish has proved testing but not disheartening. Last week saw me in Suffolk, London and Devon, expanding on how best to cope with today&#39s difficult conditions. There was more optimism than I expected. People do have cash to invest and there are a few signs that new money is coming back into the market. Too many new client wins have been the result of disenchantment with a previous adviser recently, so the thought that investors will consider financial assets, rather than buy to let, is encouraging to say the least.

The question of which class of financial asset will deliver the best return is, of course, more open than ever. According to a recent study by JP Morgan, bonds have produced a superior return to equities over the past 16 years. Whether there is any significance in the duration of this outperformance is debatable but it is a sobering thought that a combination of poor equity markets and falling interest rates has upended the perceived wisdom that equities provide the best long-term returns. Whatever you consider 16 years to be, short term it is not.

The bonds versus equities argument was played out on a television screen last week with Roger Nightingale, chief strategist of Sarasin, and myself taking the red and blue corners. Roger was remarkably upbeat both for equities and bonds. Japan inevitably gained a mention. For those who feel that the fall in the yield of British Government securities from over 15 per cent to little more than 4 per cent must mark the end of the bull market, we were reminded that bond yields in Japan have fallen to below 1 per cent.

The prospect of 2.5 per cent yields in the UK should not be ruled out, according to Nightingale. Two-and-a-half per cent was the coupon attached to the Consol issue when a 19th Century Government sought to raise money for public expenditure. Consol 2.5 per cent still trades today at a price of little over £55 per cent to yield around 4.5 per cent. I remember when the price once fell to nearly equal the yield – around £16 per cent, as I recall.

Last week&#39s other enduring story was the fall in sterling. Now approaching 70p, the euro has continued its upward march but the pound is now falling against the dollar as well. This may be an over-reaction – the appropriate level for sterling against the euro for convergence purposes is generally reckoned to be about 67.5p – but those who bought their holiday homes in France and Spain a year or two ago now have a currency advantage to compensate for the slower rate of capital appreciation that foreign homes generally enjoy.

I knew I should have already bought my place in the sun but, as I keep reminding my junior colleagues, 20/20 hindsight is a bad trait in an investment manager. Better instead to concentrate on understanding the investment process so you can meet those investment objectives.

Recommended

Correspondent&#39s week

After seven educational years of investment research at Misys IFA Services watching tumbleweed, compliance directives and broker consultants blow across the flat, treeless fields of Oxfordshire, it is time to pack my trunk, say goodbye to the circus and park my hide in a corner of Jupiter World HQ.Arriving at the London office, I clear […]

Odey creates European twin

Odey Asset Management has established the Odey Pan-European fund, a Ucits that invests in Europe for capital growth. The fund is identical to the Vitruvius European equity fund, a Sicav that is managed by Odey for the Italian market. The Pan-European fund invests in a portfolio of between 65 and 70 stocks across sectors and […]

Towry Law offering hybrid loan with fix and discount

Towry Law Mortgage Services is offering an exclusive hybrid mortgage combining an initial fixed rate followed by a discount.The product has a one-year fix at 3.59 per cent followed by a 1 per cent discount off the standard variable rate – giving a current rate of 4.75 per cent – for the following year.The IFA […]

Seller&#39s packs could be delayed by looming conflict

The threat of war with Iraq could delay the Government&#39s timetable for seller&#39s packs due to be reintroduced to Parliament in March under the Housing Bill, warns Legal & General.Director (housing marketing) Stephen Smith believes it will be difficult for the Government to meet its commitment in last November&#39s Queen&#39s Speech that the bill will […]

China tech and Global Alpha: a new great leap forward

By Robin Geffen, Fund Manager and CEO

Internet giant Alibaba is exactly the type of entrepreneurial company that the high-conviction, top-performing Neptune Global Alpha Fund seeks to invest in. Established just 14 years ago in an apartment in Hangzhou, today Alibaba is larger than Amazon and eBay put together and is challenging some of the most powerful internet companies in the world…

Read more 


Important information

Investment risks

The value of an investment and any income from it can fall as well as rise and you may not get back the amount originally invested. Forecasts and past performance are not a guide to future performance. Some information and statistical data herein has been obtained from sources we believe to be reliable but in no way are warranted by us as to their accuracy or completeness. These are Neptune’s views and as such this document is deemed to be impartial research. We do not undertake to advise you of any change to our views.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com