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Julian Marr: Time to revisit the investment basics

Last week I travelled some of the length and a little of the breadth of the country as the IQ Autumn Roadshow showcased a good investment mix of equity income, bonds, global energy and, in Neptune’s Rob Burnett, the first European equities manager to stick his head above the parapet since I cannot think when.

For once, the Q&A sessions have not featured a majority of questions from me – although, as I type, we have yet to do the traditionally less-than-effusive London leg – and one standout contribution came from James Dalby, Aviva UK Life’s senior fund propositions manager (’investment expert’ to you and me).

The thrust of his question was, with high inflation, low growth rates and product charges now major considerations for advisers, how much thought do managers give to what end-investors ultimately get from their fund? The weaselly response, I guess, would have been to claim they think of little else but, to their credit, the panel sought to show some working with their answers.

First up was Richard Hulf, co-manager of Artemis global energy, who said his portfolio is looking to access “non-OECD growth through OECD-based companies”, while the advice of Douglas McDowell, head of investment strategies at Neptune, was to think globally.

“Identify where you think there is a combination of decent growth and value and that is probably your best prospect for making money,” he added. “Think about the world as it is in reality, which is a collection of individual companies that may happen to be quoted in a country you do not find attractive but, if the underlying business is attractive, it becomes part of your portfolio.”

Tony Nutt, manager of Jupiter’s income and high income funds, referred back to an interview he gave in 2000. “I said I did not see the market returning to an all-time high in my lifetime – certainly not my working lifetime – and there were sharp intakes of breath,” he continued.

“But with a market that was then 25 per cent TMT and on multiples that were just misleading, it seemed to me portfolio managers had to forget about some of the parameters we look at and instead try and pursue a solid investment return based on dividend growth, as that should lead to superior and inflation-beating returns.”

Nutt also pointed to the Barclays Equity Gilt Study, the 2011 edition of which shows the value of £100 invested in equities at the end of 1899 would, without reinvesting income, in real terms today be worth £180 but, with income reinvested gross, would be worth £24,133 (or, nominally, an eye-catching £1.7m).

“Ways do exist to adapt your portfolios that do not involve alchemy,” he observed. “As Einstein said, man’s greatest invention is compound interest.”

According to John Pattullo, head of retail fixed income at Henderson Global Investors, the first step is to be realistic and honest with clients. “Correlations are very high at present and so you should be wary of people dressing up risk-on and risk-off trades as anything else,” he went on.
“I also agree that the power of dividends and interest cannot be ignored. People can see that as a bit dull but it is just so sensible. If you compound up equity income, it is a fantastic place to be.”
Perhaps catching the eye of his sales team, he then added: “Sovereign bonds are wildly over-expensive. I have said that too early, too often, to be honest, and it mystifies most of us why they are where they are but, against that, I can buy a portfolio of high-yield bonds, yielding 9 per cent at an average price of about 85p.

“So I would hope to make some capital uplift for clients there as well – and pick up a pretty good interest stream, too. If you do not need any income, just compound it up through accumulation units because that makes a lot of sense. There is nothing quite like a cashflow return.”

OK, so a bit of an income-manager alliance by the end then but, as global policymakers flail around for solutions to US debt, Chinese inflation and the euro-soap, it is hard to think of a better time to revisit the basics.

Julian Marr is editorial director of and


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